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USJI Voice Vol.38

Trump’s Trade War and the Thawing of China-Japan Relations

August 01,2018
Takashi Terada
Professor, Doshisha University

Many leaders in East Asia paid close attention to US President Donald Trump during his first trip to Asia in November 2017 in anticipation of him articulating a coherent vision for regional order in East Asia. However, President Trump’s main message was limited to his wish for signing of bilateral trade arrangements with Indo-Pacific nations, which generated considerable concern over the credibility of US regional commitments and leadership. The US’s lack of commitment to economic multilateralism, as symbolized by its withdrawal from the Trans-Pacific Partnership (TPP), may create an economic power vacuum that allows China to expand its influence through increased capital injections with a view to maximizing its political clout. In fact, China has responded to this lack of leadership in global and regional systems by accelerating its efforts to develop its own networks, including those focused on the traditional Western-dominated power structures. These efforts are centered on establishing the Belt and Road Initiative (BRI) with the aim of building an infrastructure that links China to western Asia, Europe, and Africa, while also negotiating less stringent trading arrangements (e.g., the Regional Comprehensive Economic Partnership (RCEP) Agreement) that are better suited to China’s preferred approach of state-led growth. The Trump administration’s egoistic pursuit of bilateral trading arrangements may accelerate this process, forcing many countries in East Asia to lean more toward China in the absence of a viable alternative.

 

With Japanese Prime Minister Shinzo Abe maintaining his steadfast loyalty to the US and President Trump, Japan has thus far shown no intention of cooperating with other allies, such as the European Union (EU), Mexico and Canada, all of which have shown little hesitation in retaliating against Trump’s trade egoism by imposing their own tariffs on US exports after the Trump administration imposed tariffs on steel and aluminum. Nonetheless, while the Trump administration and China have continued to engage in a “trade war” by imposing tit-for-tat tariffs, Japan has been more committed to strengthening its relations with China and broadening what has until now been an almost exclusive focus on the US in its economic diplomacy. China-Japan relations used to feature as a diplomatic impasse in Prime Minister Abe’s proactive diplomacy, as evidenced by the fact that China’s leaders, President Xi Jinping and Premier Li Keqiang, had never visited Tokyo since their rise to power in 2013. One approach that Abe and his aides employed to break this deadlock was for Japan to show, although not particularly tangibly or enthusiastically, potential interest in the ambitious BRI strategy proposed by President Xi. It should be noted that this decision was made through a rather unusual policy-making process, indicating the existence of power struggles among some of Japan’s key foreign policy elites.

 

In June 2017, Abe officially expressed conditional support for a cooperative stance on the BRI for the first time. While noting that “it is critical for infrastructure to be open to use by all, and to be developed through procurement that is transparent and fair,” he stated that “Japan is ready to extend cooperation” with regard to the “One Belt, One Road” initiative. Coming two years after Abe proposed his own infrastructure initiative—the Partnership for Quality Infrastructure in Asia (PQI)—at a banquet held at the same Future of Asia Conference, this was quite a symbolic statement because it marked a clear shift from Abe’s conventional reluctant, and even confrontational, stance toward China’s infrastructure initiative. It was Toshihiro Nikai, the Secretary General of Japan’s ruling Liberal Democratic Party, and Takaya Imai, an Executive Secretary to the Prime Minister, who played pivotal roles in persuading Abe to adopt a softer attitude toward China’s infrastructure initiatives. When Nikai, a well-known pro-China politician, attended the Belt and Road Forum held in Beijing in May 2017 as Japan’s representative, he presented President Xi with a letter from Prime Minister Abe calling for more visits to Tokyo by key Chinese figures. Serving as Abe’s right-hand man and having formerly worked as a senior official at the Ministry of Economy, Trade and Industry (METI), which is responsible for the formulation of Abe administration’s economic growth strategy, Imai was also dispatched to Beijing to attend the Forum without his boss. Imai met with Yang Jiechi, then China’s top diplomat who had recently been promoted to the Politburo, to convey Tokyo’s wish to improve ties with Beijing. Imai’s meeting with Yang was unusual in that the latter would normally meet with his Japanese counterpart, Shotaro Yachi, the Director-General of the Secretariat for the National Security Council (NSC). More surprising still was Imai’s subsequent confession in an interview article that he himself had rewritten the content of the letter from Abe to Xi, including the passage concerning the government’s conditional support for the BRI. This antagonized Yachi and senior officials from the Foreign Ministry who were strongly opposed to the BRI. Consequently, Abe took the unusual step of meeting with China’s two top leaders during a single overseas trip: Xi at the Asia-Pacific Economic Cooperation (APEC) Summit in Danang, Vietnam, and Li at the East Asian Summit in Manila, Philippines in November 2017. With the US under President Trump having no interest in regional economic cooperation, the Nikai-Imai faction, which prioritizes economic ties with China, gained further prominence under Abe’s foreign policy structure. Abe has a high regard for Nikai, a key party figure in terms of Abe’s hopes of winning the upcoming LDP Presidential Election and securing a term until 2021, as well as Imai, whose policy, like his many colleagues in METI, is oriented toward providing manufacturers with more opportunities to compete freely and equally in domestic and international markets. This faction will gain even more significance when Japan and China begin coordinating Abe’s scheduled visit to Beijing in 2018, which is a pre-condition for Xi’s visit to Tokyo the following year.

 

China also wanted to improve its relations with Japan symbolically since its neighborhood diplomacy was in trouble. Its diplomatic challenges included its limited influence on North Korea’s long-range missile and nuclear development, South Korea’s deployment of a Terminal High Altitude Area Defense (THAAD) missile system that can monitor all of mainland China, Taiwan’s president advocating Taiwanese independence, criticism of its South China Sea disputes with Vietnam by non-claimants including Australia and Singapore, and heated border disputes with India. Finally, in Japan, Prime Minister Abe and his party won a landslide victory in the Lower House elections held in October 2017, thereby ensuring that Abe would retain power for a few more years. Xi Jinping found a good opportunity to improve relations with Japan and escape the various diplomatic impasses surrounding China. As mentioned earlier, Japan’s burgeoning interest and possible engagement in the BRI would be a welcome move for China, which is another factor behind China’s increasingly positive view of relations with Japan.

 

In May 2018, the three leaders of China, Japan and South Korea gathered in Tokyo for the first time since November 2015 to attend the Trilateral Summit. Tokyo’s hosting of this summit represented the first visit of both the Chinese Premier and the South Korean President to Japan since 2011, hinting at a possible improvement in Japan’s troubled relations with its two neighbors. The 2018 Trilateral Summit thus re-emerged as a symbolic forum for shaping a common approach to the potential realization of denuclearization on the Korean Peninsula, but it was a fear of marginalization on the part of China and Japan that made the need for collaboration between the two nations an urgent matter. If a peaceful North Korea emerged and then established good relations with Trump’s America thanks to the US’s carrot of infrastructure development assistance and other economic gifts, China and Japan would find it difficult to exert greater influence. Japan’s concerns arose because of its exclusion from a joint statement made by Kim Jong-un and Moon Jae-in in Panmunjom on April 27, 2018, as a core player in the bid to attain peace on the Korean Peninsula. Japan views this exclusion from the peace-building process as a sign that the Japanese abduction issue, which is Abe’s most significant agenda in terms of Japan’s relations with North Korea, is being consigned to oblivion. China’s concerns can be understood from Xi Jinping extending a warm welcome to Kim Jong-un in his two visits to China in just one month with the aim of demonstrating to the US its influence in issues concerning the Korean Peninsula. Given these developments, it was no surprise that Japan responded positively to China’s overtures by treating Li as a state guest with time allotted for a meeting with the Emperor, a privilege that was not afforded to Moon, and having Abe serve as a host for Li’s full-day trip to Hokkaido despite the Diet being in session.

 

China’s increased interest in trilateral cooperation, which would entail the mending of its relations with Japan, has been encouraged by Trump’s trade protectionism and harsh tariff retaliations against China in light of its 2017 trade surplus vis-à-vis the US reaching an all-time high of $375 billion. China has thus ramped up its efforts to conclude RCEP, CJK FTA and other pending free trade pacts as a way of maintaining a free trade spirit and, more significantly, challenging Trump’s “do-anything” approach to redressing trade imbalances by potentially creating more “like-minded” states, especially Japan, a key US ally. China’s approach to RCEP naturally reflects a much lower level of ambition for the liberalization of trade and the deregulation of economic rules than the TPP, which Japan strongly supported, would have. Furthermore, the differing positions held by China and Japan with regard to the level of liberalization and deregulation have caused delays in the progress of RCEP negotiations, resulting in a failure to meet the promised deadline for its conclusion on three occasions. Curiously, Japan—or at least the Foreign Ministry—seems prepared to make compromises to realize an earlier conclusion to the RCEP, with Japan’s altered stance toward the RCEP representing an offer of assistance to China in its efforts to cope with Trump’s trade egoism. Although Japan retains its cautious and critical views toward China’s global and regional economic initiatives, Trump’s radical protectionist trade policy with the increased tariffs on key products such as automobiles has led to Japan considering the possibility of working with China to build a regional economic order as a way of reducing any negative impacts on its trade and investment.

 

In light of the above, this paper proposes that the unilateral approach of the Trump administration, including its imposition of tariffs on Chinese exports as a means of retaliating against China’s “theft” of US intellectual property, should be avoided and that the Chinese trade problem should instead be dealt with based on multilateral rules, such as the TPP. This approach would make it possible for nations that share US concerns—especially Japan, whose companies have also suffered from problems associated with China’s intellectual property policies—to cooperate and jointly pressure China to adhere to fair and free trade and investment rules. It should be noted that China has endeavored to improve its ties with major countries, such as Japan and India, in a bid to dominate the regional rule-making process for trade, investment and infrastructure. A US return to the TPP would also help prevent Japan from shifting its economic interests toward China at a time when the US and China continue to impose increasing tariffs on each other’s products. Japan would need to consider removing more trade barriers on agricultural products within the TPP framework, rather than bilaterally, as a way of encouraging the US return to the TPP. Tariffs are clearly not an appropriate answer to trade problems in today’s era of a globalized manufacturing system with well-established supply chain networks because, for instance, a tariff battle with China would raise prices not only for American consumers, but also American—and Japanese—manufacturers, such as Apple, who export their products from China to the United States. Such an approach would amount to “America Suffers” not “America First.”

 


Takashi Terada is Professor of International Relations at Doshisha University, Kyoto, Japan. He received his Ph.D from the Australian National University in 1999. Before taking up his current position in 2012, he was an assistant professor at the National University of Singapore (1999-2006) and associate and full professor at Waseda University (2006-2011). He has also served as a visiting fellow at University of Warwick, U.K. (2011-12), a public policy scholar at Woodrow Wilson Center, Washington D.C. (2012), and an operating adviser for the US-Japan Institute (USJI) (2011-). His areas of specialty include international political economy in Asia and the Pacific, theoretical and empirical studies of Asian regionalism and regional integration, and Japanese politics and foreign policy. He is the recipient of the 2005 J.G. Crawford Award.

 


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