Stuck between China and the US, flailing Japan needs a grand new plan

Faced with economic woes and geopolitical uncertainties that have left it increasingly squeezed between a resurgent China and an unpredictable ally in America, Japan needs a grand new strategy

Richard Heydarian

Published: 5:30am, 26 Feb 2024

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“Japan is the world’s third-largest economy and has consistently sought to bring about peace and prosperity in the region since the end of the second world war,” said Prime Minister Fumio Kishida at the 2022 Shangri-La Dialogue, Asia’s premier defence summit. “Accordingly, the responsibility Japan must fulfil is heavy.”

“We will advance the fundamental reinforcement of Japan’s defence capabilities in tandem with reinforcing the Japan-US alliance and strengthening our security cooperation with other like-minded countries,” he added.

Soon, Japan vowed to increase defence spending, enhance its military capabilities and expand defence aid to like-minded nations. Despite the projection of assertiveness, however, Japan’s leadership is grappling with profound strategic anxieties.

At home, the Kishida administration is deeply unpopular, with public disapproval ratings reaching 65 per cent last November. Following yet another recession, Japan has been overtaken by Germany as the world’s third-largest economy, and could soon by superseded by India.

To make matters worse, such moments of domestic vulnerability have coincided with extreme geopolitical uncertainty. Japan is confronting the resurgence of China as a fully fledged technological and military power as well as the potential return of Donald Trump to the White House next year, which may well prove to be more disruptive than his previous term.

On the surface, Japan is a dynamic nation. On a recent visit to Tokyo, I noticed the changes brought about by the Olympics, which ushered in major public infrastructure projects. Investors seem bullish and the stock market is at its highest in decades.

A man walks by a financial monitor in Tokyo on February 15 showing the Nikkei 225 stock average ending the day above 38,000 points for the first time in 34 years. Photo: Kyodo

Crucially, Japan has embraced a new era of “realism diplomacy” anchored in expanded military spending, the development of next-generation defence technology and increasingly offensive weapons systems, and the establishment of an Official Security Assistance (OSA) initiative to aid like-minded Indo-Pacific nations.

By all accounts, however, Japan’s miraculous transformation, after a century that began with the Meiji Restoration in the late 19th century and extended to the 1980s economic boom, seems over. In recent decades, the East Asian nation has been steadily eclipsed, most notably by China, which dethroned Japan as the world’s second-largest economy in 2010.

Japan’s decline is arguably more dramatic than in any other major nation in recent memory. In the 1990s, Japan’s gross domestic product represented 15 per cent of the global economy. Today, it stands at just over 4 per cent. In the same period, China’s share of global GDP has risen from 2 per cent to 18 per cent.

The picture is even more dramatic in East Asia. Between 1990 and 2014, Japan’s share of regional GDP collapsed from over 70 per cent to around 20 per cent, while its share of regional trade declined from over 45 per cent to barely 15 per cent. In contrast, China’s regional trade ballooned from under 10 per cent to more than 40 per cent, while its share of GDP rose from under 10 per cent to more than 50 per cent in the same period.

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Just two decades ago, Japan’s defence budget was 60 per cent larger than China’s. Nowadays, China’s defence budget is five times larger than Japan’s.

For Japan, the China challenge goes well beyond sheer numbers. In particular, senior Japanese officials are concerned about China’s rapid advancements in cutting-edge technologies, namely in artificial intelligence, quantum communications and renewable energy.

Adding insult to injury, China recently dethroned Japan as the world’s largest car exporter and is miles ahead in electric vehicle production. While Japan is aiding America’s efforts to deny China access to high-end semiconductors, it is also worried about the potential of reprisals from Beijing, which has become an increasingly dominant actor in global supply chains.

What if China declared a protectionist trade war on the US and the West?

In particular, China has the ability to restrict not only access to its massive consumer market, but also deny Japan access to its rare earths and critical minerals in the event of economic warfare. There are also growing concerns over contingencies, most notably over Taiwan.

Accordingly, Japan is assessing how it can aid its allies and directly respond to any near-future attack on Taiwan. This explains the efforts to establish a Japan-Philippine-US security framework, which is largely shaped by fears of a potential war with mainland China over Taiwan.

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Japan’s defence policy calculus, however, is largely shaped by its alliance with the US. And this is precisely why the Japanese strategic elite is deeply perturbed by the prospect of a second Trump administration, which could prove even more unpredictable and transactional than its first iteration.

The former president’s recent statements – most notably threats to renew trade wars through massive tariffs and coerce allies to “pay their dues” – have only reinforced strategic despondency among Japanese officials. Given the enormous complexity of the China challenge, Japanese leaders are deeply wary of any unpredictability or major shift in America’s foreign policy orientation.

Donald Trump as US president again would be the stuff of nightmares

But with its penchant for “America first” unilateralism, a second Trump administration is unlikely to employ a genuinely consultative and multilateral approach to its Asia strategy. This could, in turn, erode trust and undermine coordination among the US and its key allies, especially Japan.

If anything, few in Japan are confident that Kishida, a deeply unpopular and cautious leader, will be in a position to effectively employ “personal diplomacy” with Trump, similar to how the late Shinzo Abe did.

As a result, Japan has found itself increasingly squeezed between a resurgent China and an unpredictable ally in America. It remains to be seen, however, whether a new era of geopolitical uncertainty will usher in an entirely new grand strategy for Japan, which has largely acted in America’s shadow since the end of WWII.

Richard Heydarian is a Manila-based academic and author of Asia’s New Battlefield: US, China and the Struggle for Western Pacific, and the forthcoming Duterte’s Rise