Japan's Effectiveness as a Geo-Economic Actor

Navigating Great-Power Competition

Yuka Koshino, Robert Ward

• Publisher: Routledge
• Year: 2022
• ISBN:
  9781000643091
• Edition: 1
• Topic: History
• Subtopic: Military & Maritime History
• Index: History

Geo-economic strategy – deploying economic instruments to secure foreign-policy aims and to project power – has long been a key element of statecraft. In recent years, it has acquired even greater salience given China's growing antagonism with the United States and the willingness of both Beijing and Washington to wield economic power in their confrontation. This trend has particular significance for Japan given its often tense political relationship with China, which remains its largest trading partner. While Japan's post-war geo-economic performance often failed to match its status as one of the world's largest economies, more recently Tokyo has demonstrated increased geo-economic agency and effectiveness.

In this Adelphi book, Yuka Koshino and Robert Ward draw on multiple disciplines – including economics, political economy, foreign policy and security policy – and interviews with key policymakers to examine Japan's geo-economic power in the context of great-power competition between the US and China. They examine Japan's previous underperformance, how Tokyo's understanding of geo-economics has evolved and, given constraints on its national power-projection, what actions Japan might feasibly take to become a more effective geo-economic actor. Their conclusions will be of direct interest not only for all those concerned with Japanese grand strategy and the Asia-Pacific, but also for those middle powers seeking to navigate great-power competition in the coming decades.

CHAPTER ONE Japan’s geo-economic evolution

DOI: 10.4324/9781003313038-2

Japan’s journey as an independent geo-economic actor began in the mid-1950s following its post-war reconstruction and return to the international economic system. Japan’s military capabilities were fully dismantled after 1945 as part of the Allied powers’ broad ‘demilitarization and democratization’ reforms which were designed to prevent Japan’s ‘will to war’ from re-emerging to challenge the US-led post-war order.¹ Japan’s new constitution embodied this in its Article 9 renunciation of war. The demilitarisation programme was, however, halted with the start of the Cold War. The establishment of a Communist regime in China in 1949, quickly followed by the Korean War from 1950–53, dramatically changed Asia’s strategic environment. This triggered a course reversal by the US in favour of rebuilding Japan’s economic and military capabilities to turn it into an anti-communist bulwark for the region. Even so, this did not mean that the US envisioned a robust and independent military role for Japan – witness the US–Japan mutual defence treaty of 1951, which was partly seen by Washington as a tool for controlling and managing its relations with Tokyo.²

Figure 2: Japanese and Chinese defence spending compared

Sources: IISS, Military Balance+, milbalplus.iiss.org; IISS, The Military Balance, 2002–08

This subordinate relationship in security justified the ‘mercantilist view of international politics’ (shōninteki kokusai seiji kan), prioritising Japan’s economic growth over full remilitarisation, held by Yoshida Shigeru, prime minister from 1946–47 and 1948–54.³ The Korean War, during which Japan served as a manufacturing base for US defence equipment, turbocharged Japan’s post-war economic recovery. Japan’s production surpassed the pre-war level in October 1950, and in fiscal year 1951/52 export volumes rose by a factor of five and import volumes by a factor of three.⁴ The Economic Planning Agency’s 1956 white paper, which stated that Japan’s economy ‘is no longer considered to be in a post-war reconstruction period’, may be seen as the start of Japan’s ability to look outward for economic expansion and to integrate itself into post-war US-led international economic agreements and institutions.⁵ The formal ending of the Allied occupation in 1952 (when the San Francisco Peace Treaty came into effect) and Japan’s entry into the institutions of the Bretton Woods international monetary system – Japan joined the IMF and the World Bank in 1952 and the General Agreement on Tariffs and Trade (GATT) in 1955 – were also important political and economic markers for Japan’s return to the international community.

Figure 3: Annual growth in real GDP and consumer price inflation, Japan, 1961–2020

Source: World Bank database

The high-growth era, which lasted from the mid-1950s until the first oil shock of 1973, saw Japan’s real GDP grow by an average of 10% per year, an astonishing rate of expansion for an already advanced industrial economy. By 1968, Japan’s GDP had become the world’s second largest, overtaking that of West Germany.⁶ This growing global economic power was a trigger for Japan to begin developing a geo-economic role in Asia, and the Ministry of Foreign Affairs (MOFA) formulated policies intended to support regional states’ economic development. Japan’s regional role, buoyed by Tokyo’s ODA from the 1950s – initially in the form of wartime reparation payments – grew in tandem with Japan’s economic weight.⁷ Japan’s accession in 1960 to both the Organisation for European Economic Cooperation’s newly established Development Assistance Group (DAG, now the OECD’s Development Assistance Committee) and to the International Development Association, an affiliate of the World Bank, bolstered its international presence.⁸ Japan’s initiative in establishing the ADB in 1966 was another example of Tokyo’s active regional geo-economic role.

Notwithstanding rising activity, Tokyo’s record of achievements in the period was mixed. The Ministerial Conference for the Economic Development of Southeast Asia (SEAMCED), which Tokyo intended as a tool of regional integration, is a good example of this. Tokyo convened SEAMCED in 1966, its first such international initiative since the end of the Second World War, but, notwithstanding the geopolitical headwinds in the region at the time – this was at the height of the Vietnam War – the Conference’s failure to gain diplomatic traction suggested that Japan had neither the capacity nor the will to take a leading role in building regional order.⁹ Still-fresh memories of the rapacious behaviour of the Imperial Japanese army in Southeast Asia during the Second World War and of Japan’s wartime efforts at regional economic integration through its Greater East Asia Co-Prosperity Sphere contributed to regional reluctance to engage with the initiative. At SEAMCED’s second meeting in the Philippine capital Manila, for example, the Philippines’ president Ferdinand Marcos warned against attempts by any country to dominate the region economically.¹⁰ SEAMCED only met until 1974.

Domestic ideological friction and US ambivalence about Japan building a regional role for itself also constrained Tokyo’s room for manoeuvre in the period. After the US entry into the Vietnam War in 1965, for example, Washington wanted Tokyo to play a more active economic role in the region as its ally. But political divisions within Japan regarding its security alliance with the US circumscribed Tokyo’s ability to give support to this idea. At times, the US also limited Japan’s exercise of geo-economic power. Under prime minister Ikeda Hayato (in office 1962–64), Tokyo began engaging with China. This reflected his view that establishing formal ties with Beijing, not Taipei, would become the future trend.¹¹ He began the engagement economically by signing a memorandum for ‘friendly trade’ between private firms in 1962, despite the intense hostility between the US and China.¹² Japan’s political room for manoeuvre with regard to China was, however, constrained by its need to align diplomatically with the US in the anti-communist war in Vietnam and by its desire to avoid controversy with its ally, particularly in order to secure Washington’s agreement to return Okinawa to Japanese sovereignty, which it accomplished in 1972.¹³

Tectonic changes in the 1970s

International political and economic turbulence in the 1970s prompted a major shift in Japan’s geo-economic strategy, particularly in terms of needing to build economic security and resilience. There were three main triggers for this change. The first two came in the form of the two unilateral moves by US president Richard Nixon in 1971 that triggered structural breaks in US policy, known in Japan as the ‘Nixon shocks’ (Nikuson shokku). The first of these came in July 1971 with Nixon’s announcement that his national security advisor, Henry Kissinger, had secretly visited China – with which the US did not yet have diplomatic relations – to prepare the ground for a presidential visit to Beijing with the aim of normalising bilateral ties, with Nixon subsequently visiting Beijing in February 1972. This US volte face on China policy, designed to offset the United States’ weakening position in the region as a result of its Vietnam War setbacks and to increase US leverage against the Soviet Union, was a brutal reminder to Japan of its lack of agency in its relationship with the US – prime minister Sato was informed only minutes before Nixon’s announcement. Japan was, however, subsequently quick to adjust its policy towards China, restoring diplomatic relations with Beijing in September 1972 (more than eight years ahead of the US) under Sato’s successor as prime minister, Tanaka Kakuei (in office 1972–74), thus paving the way for a significant and successful deepening of Sino-Japanese economic relations in the late 1970s and 1980s.

The second shock came in August 1971 with Nixon’s suspension of the convertibility of the US dollar to gold and the introduction of a 10% surcharge on imports into the US. Japan and others had prospered under the global fixed exchange-rate regime, which had also underpinned the post-Second World War Bretton Woods international monetary system and had been underwritten by post-war US economic strength. By 1970, however, rising inflation, fiscal and trade deficits and unemployment in the US had drained Washington’s ability to support this global economic role.¹⁴ Nixon’s striking down of this system against the background of his desire to extricate the US from the Vietnam War fed already heightened Japanese concerns about the reliability of its strategic relationship with the US. With his second shock Nixon was ‘in essence telling the world that the near omnipotent role that the United States had played since the war was over’.¹⁵

The third trigger was the Yom Kippur War between a coalition of Arab states on the one hand and Israel on the other in October 1973 and the accompanying embargo on oil exports by the Organization of the Petroleum Exporting Countries (OPEC) to those countries seen as supporting Israel, including Japan. This ‘first oil shock’ – with the second one coming in 1979 after the Iranian Revolution – and the resulting steep increase in global oil prices hit Japan’s oil-intensive economy hard, revealing the extreme vulnerability of its economic health to external geopolitical events. (At the time, Japan’s oil-import dependency was 99.7%, of which 88% came from the Middle East.)¹⁶ The rise in oil prices fuelled already building inflationary pressures in Japan, tipping the country into its deepest recession since 1945. But global economic turmoil also catalysed Japan’s global economic role. One example of this was the convening in 1975 of the first G6 meeting, which included Japan as well as France, Italy, the UK, the US and West Germany, and was designed to explore solutions to what was then seen as the steepest global economic downturn since the 1930s.¹⁷

Apart from precipitating its 1973–74 recession, the ‘first oil shock’ was significant for Japan as it signalled the beginning of an era of global ‘power economics’, in which economic rather than military power and tools became a major focus of state-craft.¹⁸ In Japan, this manifested itself in two major ways. The first was the development of Japan’s first post-1945 regional geo-economic strategy for Southeast Asia. The strategy, called the Fukuda Doctrine after its originator, prime minister Fukuda Takeo (in office 1976–78), and outlined by him on a visit to Manila in 1977, stated three pillars for Japanese policy towards Southeast Asia: the rejection of a military role for Japan in the region; the consolidation of Japan’s relationship with the region through ‘heart to heart’ understanding; and the positioning of Japan as an ‘equal partner’ of Southeast Asian countries and their regional grouping, the Association of Southeast Asian Nations (ASEAN). This was significant for Japan’s geo-economic strategy in two ways.¹⁹ First, it reconfirmed to Southeast Asian governments that Japan intended to play a geo-economic rather than a military role in their region. Second, the Fukuda Doctrine pointed to a repositioning of Japan’s engagement in Southeast Asia away from a narrow, bilaterally based commercial focus. One important result of the Doctrine was an increased Japanese focus on Southeast Asia when allocating ODA: in 1977 Tokyo announced that it would double its ODA to the region by 1980.²⁰

In contrast with the mid-1960s when Japan’s evolving ambitions outpac...

Table of contents

• Cover
• Half Title
• Endorsements
• Title
• Copyright
• Contents
• Authors
• Acknowledgements
• Glossary
• Introduction
• Chapter One Japan’s geo-economic evolution
• Chapter Two Japan’s geo-economic strategy: the means
• Chapter Three Japan’s geo-economic strategy: implementation
• Chapter Four Japan’s geo-economic effectiveness
• Notes
• Index