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ABSTRACT
Through the prism of Japan's trade and investment linkages with China and the US, this article evaluates the potential of Japan in providing a balance to China under the US's economic containment. The empirical results turn the conventional views on their head, showing that the US and Japan are more influential with each other. China's rising economic capacity and fierce competition with Japan also make it less likely for Japan to accept greater trade partnership with China, not to mention the long-term bilateral diplomatic instability and uncertainties that do not allow Japan to risk becoming overly dependent on China economically. By analysing trade and investment structures of the three, this article examines the possibility that the Japan-China cooperation could draw Japan away from its existing economic alliance with the US.
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No potential conflict of interest was reported by the author(s).
Correction Statement
This article has been corrected with minor changes. These changes do not impact the academic content of the article.
Notes
1 Lowy Institute, Asia Power Index, pp. 5–6.
2 In 1996, the US and Japan were brought into an alliance, jointly announcing that their cooperation would be the bedrock of East Asia’s regional stability in the post-Cold War era.
3 As China was experiencing rapid economic growth and making its transition into a market economy, the US and Japan adopted a series of policies to help China (Green, Citation2001). These policies did not regard China’s rise as a threat but as a policy objective of incorporating China into the international system, starting with its economy. Throughout the 1990s the US focused on creating a strategic partnership with China during its economic boom. Beginning in the 2000s, the US’s Asian policy priorities were on issues such as the war on terrorism, and in the Far East it preserved its economic partnership with China until the 2008 subprime mortgage crisis when economic need forced it to continue its stable bilateral relationship with China as the largest emerging economy. Over the following couple of years, the US-China economic partnership grew stronger.
4 This is mainly through Abenomics (Hughes, Citation2015). Abenomics is a term for the multi-pronged economic programme proposed by Japan’s former Prime Minister Shinzo Abe, generally consisting of monetary easing, fiscal stimulus package and domestic economic structural reforms.
5 Please refer to China’s Premier Li speech quoted in “China and Japan should safeguard free trade, China’s Li urges”. Shirouzu, N. (Citation2018). China and Japan should safeguard free trade, China’s Li urges. Reuters News, 25 October 2018. Available at <https://news.trust.org/item/20181025125355-j082a> accessed 22 September 2021.
6 Please refer to Ratna, P. (Citation2018). India in Transition: The Emerging Strategic Equation in Asia. Center for the Advanced Study of India of the University of Pennsylvania. Available at <https://casi.sas.upenn.edu/iit/parasratna> accessed 22 September 2021; and Sieg, L. (Citation2018). Japan, China Seek Warmer Ties against Backdrop of U.S. Trade Friction. Reuters News, 25 October 2018. Available at <https://news.trust.org/item/20181025000611-xta5m> accessed 22 September 2021.
7 The data used in this paper was mainly collected from official data sources: The United States Census Bureau database; Japan External Trade Organisation’s trade and investment data; China’s National Bureaus of Statistics; World Bank’s World Development Indicators; and World Integrated Trade Solution database. This research investigates the 1980s–1990s period when Japan moved its investment focus from the Asian Tigers to China in the second wave of post-war Asian industrialization, to 2017 before the US’s trade conflicts in Asia. We use macro data to delineate historical economic relations between the three countries, and which two interact economically most deeply at present. We analyse the composition of all three countries’ trade and investment to identify a country’s importance to the others’ economic development and hence its long-term impact on conflicts with and the concerns of the other two.
8 The Chinese-dominated regional order collapsed completely in the late 19th century, leaving most of the regions’ international relations and national identities in chaos, mostly due to the rise of Imperial Japan and Western colonialism; though the impacted countries managed to fully recover by the 1960s, their growth was still limited by the divisions in the Cold War reconciliation.
9 In contrast the Association of Southeast Asian Nations (ASEAN) was created to reduce and balance local tension in Southeast Asia during the Cold War.
10 In the US-Japan-China triangle, the US-Japan relationship is by far the strongest due to not only the security agreement between the US and Japan whereby the US provides a nuclear umbrella and assurance of support if Japan is attacked, but also the interface between institutions in most sectors of the country that have been built under US monitoring since the late 1940s (Hughes & Fukushima, Citation2004).
11 Sino-Japanese bilateral relationship was severely tested in the 2000s. From 2001 to 2006, Japan’s former Prime Minister Junichiro Koizumi visited the Yasukuni Shrine on an annual basis. His frequent visits to the shrine were condemned by China and other Asian countries occupied by Imperial Japan in WW2 as an attempt to legitimise Japan’s militarism.
12 For example, in 2019 Japan surpassed the US to become the largest FDI-originating country.
13 In 2018 China’s outward investment was US$143.04 billion, only US$0.12 billion less than that of Japan (United Nations Conference on Trade and Development, hereafter UNCTAD), to become the second largest investor in the world.
14 While the rise in ranking of Asian developing countries in both US and Japanese trade has shown that developing Asia has the potential to absorb industrial overcapacity and support US and Japanese economic growth, the composition of their trade in Asia differs significantly. US trade with Mexico and Canada was significant in 2019. While these countries matter geopolitically as a result of their proximity to the US, US trade with them focuses on natural resources (e.g. energy and minerals), particularly in the case of Mexico. Japan’s trade in Asia, compared with its trade with China, is evenly distributed. Since Japan is a country lacking in natural resources its trade with as well as investment in Asia has been resource-oriented. Asian resource-originating countries’ demand for technology and industrial products complements Japan’s demand for natural resources. Understandably, Japan’s trade with the United Arab Emirates, Saudi Arabia and Brunei are heavily resource-based.
15 Japan’s trade in non-energy products is mostly with the emerging Asian markets. Japan’s top trade partners were mostly its neighbouring East Asian regions (e.g. Hong Kong, Taiwan and South Korea) and industrializing Southeast Asia (e.g. Vietnam, Singapore and Malaysia), which have gradually overtaken China as Japan’s important goods suppliers since the early 2010s. This development could be attributed to (i) the stagnant share of industrial products in China’s exports; and (ii) the similar development trajectory of other Asian economies and growing strength of Southeast Asia in the world trade system.
16 Japan’s trade deficit with Saudi Arabia was US$22.5 billion, with the United Arab Emirates was US$19.01 billion, Qatar US$12.02 billion, Malaysia and Indonesia each was US$4.2–4.4 billion in 2019.
17 Japan’s trade deficit with China in 2019 was derived from imports of US$169.3 billion and exports of US$134.7 billion. With the US, Japan recorded a surplus of US$60.7 billion in 2019, with exports of US$139.9 billion and imports of US$79.2 billion.
18 This is true not only for China. According to Hollerman and Myers (Citation1996, pp. 201–232), in the 1990s almost half of Japanese firms in South Korea were jointly owned, with 40–60 per cent of the firm ownership held by a Japanese company. In Taiwan about 40 per cent of Japanese ventures in the electronics industry in three export processing zones were wholly owned by Japanese investors.
19 Hence despite an encouraging bilateral investment history, China may face pressure to compete with Asian emerging economies for Japanese outward FDI.
20 According to UNCTAD, in 2019 Japan was the largest FDI-originating country (US$227 billion) after the US (US$125 billion). UNCTAD. 2020. World Investment Report 2020. Available at <https://unctad.org/system/files/official-document/wir2020_en.pdf>, accessed 15 February 2021.
21 Japan’s OFDI in the US in 2019 also surpassed that of ASEAN (excluding Singapore) and the four Asian Tigers.
22 Asia constituted 27.8 per cent of Japan’s total OFDI stock by end 2019.
23 This is also known as Diaoyu Islands dispute, or Senkaku-shoto Islands dispute in Japan: a territorial dispute over an uninhabited chain of islands in the East China Sea.
24 Similarly, if China seeks a long-term partnership with Japan it must consider the potential impact it would have on its relationship with Russia and the possibility of conflict between Russia and Japan.
25 This is known as Northern Territories dispute between Russia and Japan involving four islands off the coast of Hokkaido.
26 China also benefitted from the Japanese-Korean conflict at the time.
Additional information
Notes on contributors
Jane Du
Jane Du is a Research Associate in the China Institute, School of Oriental and African Studies, University of London. Du has specialized on agricultural economics. Her further research focus is the historical development of China’s rural economy and its relationship to modern industrialization.
Cheng King
Cheng King is a Research Fellow at Shandong University. King has specialized on fiscal management in China between the seventeenth and nineteenth centuries, the agricultural history of ancient China, and the process of post-war economic catch-up in Asia.