The 2019 G20 Summit was held this year on June 28th and 29th in Osaka, Japan. The G20 Summit included the representatives of 19 countries and the European Union, together accounting for close to 90 percent of the world’s GDP. Of particular interest at this year’s summit was the triangular relationship between the United States, Japan, and China. Tensions between the U.S. and China were one of the center points of the summit, with the Trump administration’s threat to impose substantial new tariffs hanging over discussions. However, both the U.S. and China backed down from recent threats and pledged to restart negotiations. In years past, this might have paralleled rising tensions between Japan and China over the East China Sea. But at this year’s G20, we saw continued uncertainty in the future of the U.S.-Japan relationship and the slow but steady improvement of Sino-Japanese ties.
U.S.-China relations were not doing well in the lead up to this year’s G20. Trade negotiations between the two countries broke down in May, with both the U.S. and China blaming the other for the impasse. Following the breakdown, the Trump administration raised its 10% tariff on some $100 billion in Chinese goods to 25%. It also threatened to extend the 25% tariff to a further $300 billion of Chinese imports. The administration also ramped up its pressure campaign on Huawei, issuing an executive order that bans U.S. companies from doing business with the company and 70 of its affiliates. China responded by raising its own tariffs on $60 billion of U.S. imports. This background of threats and retaliation clouded the summit, as many attendees were concerned about the U.S.-China trade war dragging down the global economy.
As some observers predicted, a temporary truce was called at the Osaka Summit. The U.S. agreed not to immediately impose the $300 billion in additional tariffs, and China reciprocated. The U.S. also notably agreed to allow U.S. companies to sell goods to Huawei, a concession that will spare both Huawei and a number of American firms a great deal of pain. The U.S. and China committed to restart the stalled negotiations, but Xi Jinping reportedly rebuffed Trump’s attempt to get China to commit to buying more U.S. agricultural goods. Whether the next round of trade negotiations will bear fruit or, like previous attempts, fail to establish common ground remains to be seen. Xi has already tried to signal that China is preparing for a longer standoff with the U.S. and may avoid backing down too quickly in order to not lose face. Likewise, the U.S. under Donald Trump is not an easy negotiating partner.
Tension between the U.S. and China in the lead up to a summit is nothing new. What is new in this decade is the development of a working relationship between the Chinese and Japanese governments. Last year, Japan and China made significant progress toward a reset in relations that had previously been characterized by territorial disputes and economic pressure tactics. A series of meetings culminated in Japanese Prime Minister Shinzo Abe’s state visit to Beijing in October, the first visit by a Japanese head of state in over ten years. The visit allowed for the signing of numerous business deals and a $30 billion currency swap agreement between Japan and China, an important step toward deeper economic ties between the two countries.
The G20 Summit was Xi’s first visit to Japan as the President of China, and both the Chinese and Japanese governments underlined productive points of agreement on the sidelines of the summit. Japan and China share an interest in maintaining stability on the Korean peninsula, but they also share a new set of interests that have emerged due to the Trump administration. China was not the only Asian power targeted by changes in U.S. trade policy. At the beginning of his administration, Trump pulled the U.S. out of the Trans-Pacific Partnership, derailing previous agreements between the U.S. and Japan. The U.S. and Japan have subsequently struggled over tariffs on U.S. agricultural exports and Japan’s steel and automotive exports to the United States. Japan was one of the many nations targeted by the Trump administration’s steel and aluminum tariffs, and the U.S. has further threatened to place tariffs on Japanese cars and auto parts. There did not seem to be any substantial progress on this front in Osaka. As it has in its negotiations with China, the U.S. is also trying to pressure Japan into swearing off currency devaluation in order to prop up the competitiveness of U.S. exports. These measures could drive a perennially-weak Japanese economy into recession if implemented. Trump further strained relations prior to Osaka by calling the “fairness” of the U.S.-Japan security treaty into question.
Uncertainty in the U.S.-Japan relationship driven by unilateral U.S. pressure toward Japan seems to have helped lead to a détente in Sino-Japanese relations. It is no coincidence that cooperation between Japan and China has occurred under the banner of “free trade” and that Abe has reportedly advised Xi on how best to negotiate with Trump. Now, both Japan and China face a United States that is trying to use its weight to force better terms of trade out of traditional allies and adversaries alike. This U.S. “strategy” is already yielding unexpected dividends, driving together countries that it would probably prefer to deal with separately. Although it is certainly too early to make any predictions given the still-significant areas of contention between Japan and China, one might be able to picture a future where Japan looks much more like South Korea: balanced in the middle between the U.S. and China, rather than acting primarily as a U.S. client.
Osaka was an important indicator of the future of this trilateral relationship. The U.S. and China have backed off their most recent skirmish, for now. Will the next round of negotiations see the two nations come to a meaningful trade agreement, easing pressure on the global economy? Probably not. Of perhaps more interest, are the signs we saw regarding the U.S.-Japan and Japan-China relationships. There seemed to be no progress between the U.S. and Japan. Indeed, President Trump did much to irritate his Japanese partners in and around Osaka. But Japan’s rapprochement with China seems to have continued. If Japan and China continue to make progress in their relationship, the U.S. may become worried that its most important ally in Asia could fall too close into China’s orbit. If trade and treaty tensions between the U.S. and Japan persist, we could be witnessing the early stages of a fascinating new dynamic in East Asia.