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Foreign Policy

Three Traps for U.S. and Japan

Nov 29, 2021
  • Zhang Yun

    Associate Professor at National Niigata University in Japan, Nonresident Senior Fellow at University of Hong Kong

In recent years, economic security has been increasingly prominent in the strategies of the United States and Japan. In 2017, the Trump administration published its national security strategy, which equated economic security with national security. Its unilateral imposition of trade sanctions on China provided proof that the U.S. would follow the concept with action.

Subsequently, the Biden administration renounced unilateralism in public statements but continued to emphasize the need to “de-sinicize” the semiconductor and lithium battery industrial chains. And it enlisted allies. The Interim National Security Strategic Guidance the Biden team released in March elevated economic security to the level of systemic competition with China.

Parallel to these developments in the U.S., Japan made similar moves to safeguard economic security. In November 2019, Japan amended its Foreign Exchange and Foreign Trade Act to reduce the prior notification and approval threshold for foreign investors in listed Japanese companies from 10 percent to 1 percent.

Then, in April 2020, the National Security Secretariat established an economic security unit and the Ministry of Economy, Trade and Industry offered incentives for Japanese enterprises to bring production back to Japan. In October this year, the Kishida cabinet created a new ministerial post for economic security and proposed the enactment of a law that would comprehensively promote economic security in 2022.

The Quad Summit in September also emphasized the need to build a safe supply chain for semiconductors and to cooperate in the high-tech field. Recently, the Japanese government talked about financial support of 500 billion yen ($4.3 billion) for TSMC, a Taiwan semiconductor manufacturer, to build a plant in Japan.

The idea behind the U.S.-Japan economic security alliance is to deal with China’s so-called economic threat, which naturally triggered high vigilance in China. While agreeing with vigilance, I also see the U.S. and Japan potentially walking into three traps of their own making by building high walls with a hardened economic security alliance.

First, economic security should be understood as economic growth plus security. Without growth, there will be no economic security. In the globalized world of today, any country using economic security as an excuse for trade protectionism and imposing a tech blockade to decouple sets of interdependent relationships will not achieve the desired economic competitiveness. Rather, it harms innovation. Massive government subsidies to make firms produce in their home countries looks like job protection in appearance, but it easily leads to overcapacity and zombie firms.

To gain a foothold in a world of fast-changing high-tech competition, governments naturally spend more on research and development. But R&D behind closed doors on national security grounds will isolate companies from the real needs of the global marketplace, again harming innovation. The Biden administration’s campaign to “Buy American” and bring back the supply chain, if fully implemented, will not only hurt low-income people but will also reduce productivity and innovation.

Second, the alliance’s pursuit of absolute economic security will thrust major-power relations into a trust deficit dilemma, to the detriment of its own security interests. It seems that the U.S. economic security concept seeks absolute security in the economic domain through the reduction or even elimination of mutual vulnerability in economic interdependence.

If America’s allies adopt the same absolute security approach, they are, in effect, building a system like global missile defense in the military field to achieve zero vulnerability of its own side and absolute vulnerability of the other. To arrive at this goal, the U.S. must continuously maintain a small, closed and united circle.

Frequent use of the absolute discourse system of national security in the international economic field will inevitably lead to antagonism between countries and peoples. But trust remains the foundation of security. Without trust no wall is of any help, no matter how high it is.

Third, an economic security alliance will become a barrier for the U.S. and Japan as they seek to play an active role in the collective consultation process regarding the rules of global economic governance, and they may fall into the trap of self-isolation. Neither the U.S.-Japan high-tech security concept nor the Quad’s safe industrial chain is broadly representative or transparent. APEC, for example, has been discussing the importance of industrial chain connectivity.

In April 2020, Singapore and New Zealand proposed to maintain open and connected industrial chains. A month later, the APEC Trade Ministers’ joint statement vowed to intensify work that minimizes disruption and enhances the resilience of supply chains, stressing that stronger industrial chains should not create unnecessary barriers to trade and should be consistent with WTO rules.

The digital economy is a new field in which international rules have not yet taken shape. But if the U.S.-Japan economic security alliance insists on the myth that it’s a higher standard, it may well land in self-isolation. Singapore, New Zealand and Chile signed the Digital Economy Partnership Agreement in January 2020, and China formally applied to join in November this year. It was reported that the three sponsors had also invited the U.S. and Japan, which didn’t seem to have responded positively. In fact, at the 2019 G20 Summit in Osaka, Japan proposed the concept of “data free flow with trust,” but apparently made little progress even with the U.S.

Economic security can only be achieved through growth and innovation. Sole reliance on protection and the military alliance logic will not only hinder legitimate economic activities and restrict self-development but will create even greater insecurity.

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