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In the first installment of a three-part series, executives at the Asia Pacific Initiative — Chairman Yoichi Funabashi, Research Director Yuichi Hosoya and Ken Jimbo, Executive Director for the Japan-U.S. Military Statesmen Forum — discuss how the international order involving the U.S. and China has evolved over the years and how it has affected the Japan-U.S. relationship.

YH: Roughly eight years have passed since then-Prime Minister Shinzo Abe and U.S. President Barack Obama held talks in February 2013, their first meeting after Abe’s second stint as prime minister began.

Japan-U.S. relations and U.S.-China relations have changed greatly since then.

At the time of the meeting, while Abe’s historical revisionist stance had been criticized as an obstacle to peace in Asia, U.S.-China relations were relatively stable under the Obama administration.

However, after Donald Trump became U.S. president, tensions between the United States and China heightened, leading to deepening confrontations.

The two nations’ clashes have intensified even further in the past year, after then-deputy national security adviser Matt Pottinger harshly criticized China’s control over freedom of speech under President Xi Jinping’s government, in a speech delivered online in Chinese on May 4 for a symposium held at the University of Virginia.

Looking from the perspective of geoeconomic structural changes, how should we interpret those changes? What is the true nature of those changes?

YF: There is a big difference between the Japan-U.S. relationship of eight years ago and that of now. Because of fierce criticism of Abe, the Obama administration gave Japan the cold shoulder in 2013. Compared with those times, Japan and the U.S. are currently maintaining a very good relationship.

The Biden administration has high expectations for Japan. For instance, even before being inaugurated, Biden made clear that Article 5 of the U.S.-Japan security treaty would apply to the Senkaku Islands.

Biden also expressed support for the so-called Free and Open Indo-Pacific strategy in a recently-held online meeting of the “Quad” alliance of Japan, the U.S., Australia and India.

The U.S. is apparently trying to get closer to Japan. Amid that background, it was obvious that the meeting between Biden and Prime Minister Yoshihide Suga held on April 16 would be a success.

This indicates that Japan’s strategic value, including its potential value, has risen greatly in the eyes of the U.S. in the last eight years.

This is attributable to the fact that U.S.-China relations had been through tremendous qualitative changes.

One of the changes was in China’s behavior, which appears to be based on the notion that the U.S. is declining in power and there is not much it can do.

China believes the international order centered on the U.S. is in the middle of collapse. That is how the U.S. thinks of China and we can say that is what prompted the U.S. to change its China policies and raise Japan’s strategic value.

Then, on the other side of the same coin, there is China’s hegemonic — or Sinocentric — way of thinking that China is, and should be, at the center of the international order.

China has the sense that it is supported by the majority of the world, including the United Nations’ family of organizations and those involved in the Belt and Road Initiative, and claims that Western countries, such as the U.S., are in the minority.

This doesn’t mean China is attempting to completely break the international order led by the U.S. in the past. But Beijing is showing clearer signs that it wants to lead efforts to replace the logic of Western nations that have taken the lead in the international order — those which it calls the minority with vested interests — with the logic of the global majority.

I think that is also something that has changed greatly from before.

Geoeconomic competition

There is another change that has occurred in the past eight years that we should not forget about. Geoeconomics — the economy having power, or even becoming weaponized — is playing a greater role in the global political power game.

The Trump administration repeatedly imposed higher tariffs on China to counter its geoeconomic threats, and the Biden administration is believed to be basically maintaining the same stance against China.

While the
While the “Quad” grouping of Australia, India, Japan and the United States seeks to maintain peace and stability in the Indo-Pacific region, it significantly has not sought to involve China. | POOL / VIA REUTERS

In other words, U.S. geoeconomic policies toward China have changed little, even after the Republican administration turned over power to the Democrats, indicating that something like a bipartisan agreement is being formed.

A recent U.S. survey showed that 67% of Americans have negative feelings toward China.

I think they are beginning to feel the threat of China — not a military threat like the possibility of a nuclear attack, but rather the threat of battles over techno-hegemony in the fourth industrial revolution, including artificial intelligence, biotechnology and quantum computers, as well as cyberattacks, military-civil fusion, social surveillance, massive government subsidizing of companies in strategic sectors and expansion of influence in the Asia-Pacific region.

One example that signified the U.S. government’s stance was its restriction on re-exports of U.S. semiconductors to China by foreign companies, including those in Japan.

On the other hand, China is countering geoeconomic threats, such as semiconductor export restrictions, which could vitally hit its supply chain, by reorganizing the global supply chain into something that China can rely on.

At the same time, China is aiming to raise other countries’ dependence. It is trying to strengthen economic pressure on other states by taking advantage of the asymmetrical economic power relations — countries being more dependent on Beijing than Beijing is on them — and using it to achieve geoeconomic goals.

If such geoeconomic conflicts between the U.S. and China are prolonged, countries like Japan, which are highly dependent on the two nations economically, will face various risks.

For example, if the U.S. bans a Japanese firm from re-exporting chips to China and the firm fails to fulfill its contract with a Chinese company, the firm could be asked to compensate that company.

How to cope with such risks that are likely to become higher is a challenge concerning Tokyo’s future relationship with Washington and Beijing.

Japan and the U.S. are allied partners, but that doesn’t mean Japan should scramble to respond to requests from the U.S. to not conduct business with Chinese companies blacklisted under the Commerce Department’s Entity List.

Rather, it is necessary for the Japanese and U.S. governments to clearly position such geoeconomic risks and measures against risks within their national security policies and coordinate their actions to implement these measures.

Decline of liberal economy

KJ: Robert Blackwill of the Council on Foreign Relations defines geoeconomics as “the use of economic instruments to achieve geopolitical goals.”

More emphasis has been placed on geoeconomics in recent years as economic components in national security became increasingly salient. We can no longer deal with geopolitics without taking geoeconomics into account.

In the beginning of this century, globalization and economic liberalization were widely regarded as sources of innovation, and such trends were irreversible — most symbolically described in Thomas Friedman’s book “The World Is Flat.”

China has been one of the greatest beneficiaries of globalization.

However, while the wealth of emerging economies and global top earners expanded rapidly in the last two decades, the income of the middle class and laborers in industrialized economies remained stagnant.

People in the middle class became strongly aware of the fact that the benefits of globalization are unevenly distributed.

This dissatisfaction built up and led to the Trump phenomenon in the U.S. and Brexit in the United Kingdom. The Biden administration, which advocates “a foreign policy for the middle class,” cannot avoid bearing in mind such people’s sentiments.

As the Trump administration said, “economic security is national security” — economy and national security are getting closer than ever. Economic policies are now closely related to the distribution of interests within a country and are also connected to geopolitical objectives through economic cooperation, trade and investment.

And as Richard Haass of the Council on Foreign Relations pointed out, it is clear that the COVID-19 pandemic has accelerated the basic direction of world history rather than reshaped it.

While people’s movements have been restricted both at home and abroad, the connectivity of goods, money and digital supply chains has been maintained.

In such a situation, I believe that the fact that China, regarded as the epicenter of the pandemic, has been one of the first to show economic recovery and growth is what accelerates the changes in international order even more.

These changes, which had already been extremely serious even before the pandemic, are made up mainly of three elements.

The first is the change in the global power balance, the second is the shift from free economy to state capitalism and the third is the global decline of democracy.

Inefficiency is unavoidable in democracy, but more people began problematizing inefficiency in democracy as a governance model and global democracy has continued to recede in the past 15 years.

I think it is under such changes that talk of U.S. decline, as previously mentioned, has emerged.

In the field of national security, it is becoming difficult for the U.S. to maintain an advantage over China by itself and with conventional strategy.

Furthermore, while the U.S. continues to hold military strength to deter and control large-scale global conflicts, it is becoming harder for Washington to gain people’s support for international military interventions like those conducted in Afghanistan and Iraq in the past.

U.S. President Donald Trump and Chinese President Xi Jinping had a fractious relationship, marking a continuation of a longer running cooling of ties. | REUTERS
U.S. President Donald Trump and Chinese President Xi Jinping had a fractious relationship, marking a continuation of a longer running cooling of ties. | REUTERS

And no effective deterrence model has yet been constructed against so-called gray zone challenges in which it is difficult to judge immediately whether military intervention is needed.

Such a reduction in U.S. presence is behind China’s assertiveness in the South China Sea and other attempts to expand its interests in various regions. This is the change in power balance.

State capitalism

The second change is the shift to state capitalism.

China, dubbed the world’s factory, developed remarkably thanks to its export-driven economy, and the liberalization of state-owned enterprises (SOEs) and the financial system was actively discussed at the beginning of this century.

In the mid-1990s, Paul Krugman argued in his essay “The Myth of Asia’s Miracle” that productivity will not improve in Asian economies without liberalization. But China in recent years has had a large number of SOEs listed among the world’s top 500 companies by market capitalization.

One of the reasons for Chinese companies’ strong performance is the structural changes made to the Chinese economy.

China’s economy developed around such sectors as manufacturing, energy and finance, but in the past eight years, information and communication tech companies — namely Baidu, Alibaba, Tencent and Huawei — have shown remarkable growth to lead the economy as a new core sector.

While economic liberalization was believed to be inevitable for such sectors as manufacturing to evolve further, the emergence of the digital economy completely changed the situation, as digital resources including big data have become the cornerstone of national governance for China’s communist regime.

In addition, as Xi’s authoritarian approach became more conspicuous, expectations for political reform toward liberalization diminished.

As a result, I believe that in the U.S., both the Republican Party and the Democratic Party came to the conclusion that it was time to end the engagement policy with China and promote a strategic competition.

As mentioned earlier, Washington’s China policies pushed during the four years under the Trump administration, including tariffs and restrictions on Chinese firms, are not something unique to Trump or his partisanship, but will certainly be succeeded by the Biden administration.

Economic competition between the U.S. and China covers a wide range of areas, including not only tariffs but also restrictions on investments by foreign firms, export control, control on emerging technologies and government procurement restrictions. It is serious security competition in the economic domain.

Under such circumstances, the world that has competed to liberalize economies until now lost its place to go back to and is being directed toward state capitalism.

Lastly, amid changes in the global power balance and a drift toward state capitalism, democracy as a global governance mechanism has been put in an extremely difficult position.

According to Freedom House, a Washington-based nonprofit organization that monitors freedom and democracy around the world, democracy has been on the decline for 15 consecutive years since 2006. The world has not been able to bring back the trend toward democratization.

Freedom House also reported that the COVID-19 pandemic has led to a deterioration of democracy in 80 countries in the past year.

Although there are some hopeful examples of democracies being close to overcoming the pandemic, like New Zealand and Taiwan, we have to take seriously the fact that the global decline in democracy has accelerated in the past 15 years and that we have not been able to create the power to recover it.

From U.S.-China to Japan-U.S.

YH: It is also possible to discuss these changes from a historical perspective.

As said earlier, the Japan-U.S. summit meeting held in February 2013 lasted only for about two hours, and the Obama administration had adopted a cold attitude towards Japan.

I think this was because the U.S. at the time was focusing on the international order centered on its relationship with China.

In June of the same year, the U.S.-China leaders’ meeting was held in Sunnylands, California, over two days. People around the world saw images of Obama and Xi walking side by side and many had the feeling that a stable international order would be created under the cooperation of the Group of Two.

Moreover, in a speech delivered at Georgetown University in November the same year, then-National Security Advisor Susan Rice talked about seeking to “operationalize a new model of major power relations” when it comes to China, making it clear that the U.S. attached the most importance to its relations with China, not with its ally Japan.

This came as a surprise to many who had been advocating the significance of the Japan-U.S. alliance, as it gave the impression that the Obama administration was focusing more on economy than alliance, and it sounded like a message that the U.S. was giving more weight to cooperation with China, with the world’s second largest economy, despite having different values, rather than to Japan, which shares the values of freedom and democracy.

But in the latest meeting, Suga and Biden pledged to work together to build a free and open Indo-Pacific region. This indicates a significant shift of focus from U.S.-China relations to Japan-U.S. relations.

If we redefine this change in an even longer time span, we can say that, first of all, the trend of the expansion of democracy — something no one doubted in the world after the Cold War ended in 1989 — is undergoing major changes.

In 1989, Francis Fukuyama published an essay, “The End of History?” In it, he outlined a very optimistic blueprint that the defeat of communist ideology would lead to the expansion of democracy across the world, assuming that, ideologically, the countervailing force to American values had been eliminated historically.

In today’s world, however, Biden believes that the primary challenge of the international order is a confrontation between democracy and autocracy.

While it is subject to debate whether we should call the current situation a Cold War, we should at the very least be aware of the significance of the U.S. president thinking about the global order in the scope of the U.S.-China conflict.

In other words, the optimistic argument of 1989 that liberal democracy would penetrate throughout the world, including China, has disappeared.

A hands-off policy

Secondly, there was the failure in humanitarian intervention in international conflicts.

In 1999, the U.S. and other Western nations didn’t hesitate to launch air strikes on Kosovo to halt the crisis unfolding there, starting an era of humanitarian interventionism which set military action as the standard for responding to the violation of human rights against large groups.

But the situation has changed since then, as the U.S. failed in its wars in Afghanistan and Iraq and faced the limit of its power. Then came the era of non-intervention.

The launch of the Obama administration, a decade after the Kosovo conflict, brought a hands-off policy and indirectly suggested the end of an era in which the U.S. intervened in international affairs as the world’s policeman.

While Prime Minister Shinzo Abe and U.S. President Barack Obama's first meeting seemed jovial, its brevity raised eyebrows among some commentators. | REUTERS
While Prime Minister Shinzo Abe and U.S. President Barack Obama’s first meeting seemed jovial, its brevity raised eyebrows among some commentators. | REUTERS

In 2012, Obama said the use of chemical weapons by the Syrian government would be a “red line” for military intervention, but he never enforced it, later saying it was not him who set the line.

American unilateralism accelerated under the Trump administration, but Trump was not the starting point. Today’s structural changes have been ushered in during the 12 years since the start of the Obama administration when the U.S. became reluctant to intervene in global conflicts.

Moreover, looking at today’s Japan-U.S. relationship in a longer historical span, I feel it is a new form of ties that succeeds the ideas described in the Atlantic Charter issued in August 1941, during World War II.

The charter was a joint statement released following a meeting between then-U.S. President Franklin Roosevelt and then-British Prime Minister Winston Churchill to set out the principles of world order to which the U.S. and the U.K., which shared common values, should lead the world to aim for after the war.

Today, we are seeing Japan and the U.S., which also share common values, playing a key role in aiming for peace and stability in the Indo-Pacific region instead of in the Atlantic.

War broke out between the two countries in 1941. But 80 years later, the two nations, which fought a fierce battle in the Pacific, are working together to establish values such as democracy, human rights and rule of law.

The Suga-Biden meeting was significant, if not as important as the Atlantic Charter, in that sense.

It should also be noted that the Declaration by United Nations released in January 1942 was drafted by the U.S., the U.K., the Soviet Union and China.

The only shared goal among the four was to defeat the forces of fascism, and the Soviet Union and China could not be regarded as sufficiently democratic nations.

But today, the Quad countries which came together for peace, stability and prosperity in the Indo-Pacific region all share the values of democracy.

Shift from economy to values

One more incident that we should not overlook in the history of changing international order is the normalization of U.S.-China relations following then-U.S. President Richard Nixon’s visit to Beijing.

Nixon’s announcement of his upcoming visit to China was dubbed the “Nixon shock,” as that was when he effectively accepted the Communist Party that leads the People’s Republic of China as the country’s government.

Nixon and his national security advisor, Henry Kissinger, decided to take the strategy of largely receding from the importance of sharing the values of freedom and democracy to focus on the economy and choose to cooperate with China which had a different set of values.

Considering such a historical background, high-ranking Chinese officials like Yang Jiechi, director of the Office of the Central Commission for Foreign Affairs, and Foreign Minister Wang Yi have called on the U.S. for cooperation on economic and strategic interests, but the U.S. keeps a distance from such proposals.

This indicates that some 50 years after the normalization of U.S.-China relations, the Washington has returned to the stance of prioritizing ties with allies that share common values and perceiving world order within the scope of democracy versus autocracy.

I think 2021 will be remembered as a pivotal year when the U.S. shifted from the policy of managing its relations with China stably and strategically — a stance that has continued ever since the Nixon shock — to a policy of giving priority to ties with allies, especially Japan.

API Geoeconomic Briefing is a series that looks into geopolitical and economic trends in the post-COVID-19 world, with a particular focus on technology and innovation, global supply chains, international rule-making and climate change.

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