Macroscope | Japan and China are being pushed into each other’s arms by Donald Trump’s antics

Improved Japan-China relations are in prospect, now that Shinzo Abe has been re-elected leader of Japan’s Liberal Democratic Party for three more years.

Like President Xi Jinping, Abe is now operating from a stronger political power base and can afford to be bolder in the face of domestic constituencies.

Both men have expressed the interest in improving mutual relations, if only because they are confronted with the problem of dealing with Donald Trump’s trade wars - right now in the case of China, and in the near future so far as Japan is concerned. But what form will enhanced economic cooperation take?

One likely development will be Japan-China cooperation on infrastructure building in third countries, which is a prospective multi-trillion dollar market in Asia in coming years. This form of cooperation will need to take an indirect form, however, given the complexities of the situation.

Channels for conventional economic cooperation, such as increased Chinese exports to Japan (and vice versa) to offset Trump’s tariffs are limited. China is already Japan’s biggest export market and Japan is unable to absorb any more imports from China, with which it already runs a trade deficit.

Likewise, the scope for increased mutual investment in manufacturing by Japan and China is limited, in Japan’s case by the relatively small size of its market and in China’s case by existing overcapacity and the fact that Trump’s tariffs are limiting China’s attraction as an investment destination.