【Shaping the Pragmatic and Effective Strategy Toward China Project：Working Paper Vol.8】
What are the common strategic interests and rationale to compete with China by Japan and the US?

Publication of working papers for the SPF project “Shaping the Pragmatic and Effective Strategy Toward China”

　IINA (International Information Network Analysis) will upload the working papers written by U.S. and Japanese project members focusing on shaping a pragmatic and effective strategy toward China. We hope that this series will help IINA readers understand how experts from the U.S. and Japan see China and the U.S.-Japan joint efforts, which have the potential to determine the future world order.

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From the Japan-U.S. leaders’ summit through the 2021 G7 Summit, the Biden administration has set the common concerns among U.S. allies and partners over China’s challenge the existing rules-based order. This has been a good start to the consideration of the common interests and strategic rationale of the U.S. and Japan. However, this will not be an easy task for the two countries when considering an integrated approach in both security and economic policies.

The most challenging issue is determining how to prevail over China’s challenge in the economic sphere without sacrificing both Japanese and U.S. economic interests, which are closely linked with the Chinese economy and market. Since leadership in Japan and the U.S. are chosen democratically, meaning leaders are occasionally judged and replaced through election cycles, leaders in both countries cannot survive politically if their economic “decoupling” policy toward China results in huge economic damage to their constituency.

In addition, an inconvenient truth is that Japan and the U.S. are economic competitors with each other, as both experienced an era of trade conflict in the 1980s and 90s. Both countries must to minimize anxiety and skepticism regarding each other, which could be a convenient tool used by China to drive a wedge into Japan-U.S. strategic cooperation. A lack of coordination in geoeconomics may give China a tool to put distance between the two countries of the Japan-U.S. alliance.

This essay aims to present a way for Japan and the U.S. to shape an effective and feasible strategy toward China in order to shape its behavior without sacrificing their own security and economic interests.

１．Japanese and U.S. strategic interests and reasoning in geopolitics and geoeconomics

What kind of international stability should Japan and the U.S. seek for the Indo-Pacific region? In short, the rules-based order enables countries in the region to pursue economic prosperity without worrying military adventurism or coercive actions by China or other actors. Geopolitical stability would guarantee an open market and free business activity, which could eventually bring people economic prosperity.

(1) Objective of security and geopolitics

In the April 16, 2021 Japan-U.S. bilateral summit, the two countries agreed upon the “Japan-U.S. Global Partnership for A New Era,” a blueprint for a common China strategy.

In the statement, the two countries expressed concern with Chinese activities, which are inconsistent with the existing rules-based order in the region.

• We also recognize the importance of deterrence to maintain peace and stability in the region.
• We oppose any unilateral attempts to change the status quo in the East China Sea.
• We reiterated our objections to China’s unlawful maritime claims and activities in the South China Sea and reaffirmed our strong shared interest in a free and open South China Sea governed by international law, in which freedom of navigation and overflight are guaranteed, consistent with the UN Convention on the Law of the Sea.
• We underscore the importance of peace and stability across the Taiwan Strait and encourage the peaceful resolution of cross-Strait issues[1].

Geopolitically, Japan and the U.S. share a strong interest in deterring China’s unilateral military action to change status quo in the region. For Japan, China has become an existential threat for the first time since the end of World War II. For the U.S., China is the most serious challenger to its primacy since the collapse of the Soviet Union. The above facts reiterate the two countries’ effort to address the geopolitical strategy toward China as well as their interest in maintaining the regional order. Their shared target is to deter China’s military adventurism and nudge its behavior toward the existing international rules.

(2) Objective of geoeconomics and economic field

In geoeconomics and economic field, Japan and the U.S. agreed on the following:

• We exchanged views on the impact of China’s actions on peace and prosperity in the Indo-Pacific region and the world, and shared their concerns over Chinese activities that are inconsistent with the international rules-based order, including the use of economic and other forms of coercion. We will continue to work with each other based on universal values and common principles. (emphasis by the author)
• We will continue to work together bilaterally, as well as within the G7 and the WTO, to address the use of non-market and other unfair trade practices, including violations of intellectual property rights, forced technology transfer, excess capacity issues, and the use of trade distorting industrial subsidies.
• We will also partner on sensitive supply chains, including on semi-conductors, promoting and protecting the critical technologies that are essential to our security and prosperity.
• We reaffirm our commitment to achieving prosperity and maintaining economic order in the Indo-Pacific region while engaging with other like-minded partners[2].

The underlined statement above, the use of economic forms of coercion, is about countermeasures to China’s economic statecraft, which is the use of economic means to achieve diplomatic and policy goals.

These statements reveal that Japan and the U.S. have a shared interest in maintaining the current economic order and preventing China and others from changing that order, which would become a game changer not only in military competition but also in economic competition through unfair and undemocratic means. In this context, the U.S. was successful in persuading its European allies to adopt these concerns about China at the Cornwall G7, the NATO Summit in Brussel and the U.S.-EU Summit.

Likewise, Japan and the U.S. have come to share common interests and objectives. The next task is determining what kind of resources Japan and the U.S. can utilize to attain the strategic goal and how effectively they can cooperate in their approach to this goal.

2．The available resources for attaining the strategic goal

It is important to consider the resources available to attain the strategic goal. They are military and economic power of Japan, the U.S., and their partners with the synergistic effects of strategic cooperation.

The highest priority is balancing the militaries of the U.S. and its allies and partners against the PLA (People’s Liberation Army) to deter China’s military adventurism. It will not be an easy task to maintain a favorable military balance over the long term, considering China’s rapid expansion of military power and limitation posed by budget constraints in the U.S. and Japan[3]. A simple comparison of the numbers of military vessels and operational aircraft between China and the Japan-U.S. alliance in the Indo-Pacific theater shows China’s advantage and suggests it will be a difficult task to catch up[4]. This fact requires Japan and U.S. to plan overall balancing against China, combined with regional cooperation frameworks such as the QUAD(U.S.-Japan-Australia-India)[5].

For example, Kurt Campbell, Indo-Pacific Coordinator of the NSC (National Security Council) and Rush Doshi, Director for China of the NSC, wrote in an essay that lessons from the Balance of Power in the Concert of Europe (100-year calm, 1812-World War I) is useful to a strategy for the Indo-Pacific region[1]. The essay suggests the U.S. should maintain balancing against China with regional players and shape the regional order, which regional players more comfortable with this than China’s rule. That should be a common objective of Japan and the U.S. Regional cooperation frameworks such as the QUAD, which is regarded as more than cooperation but less than an alliance (perhaps an Entente), could be an important resource to develop to help shape the regional order.

Stability in the Taiwan Strait, in other words, deterring China’s one-sided annexation of Taiwan, is now a shared interest with European allies through the G7 Cornwall Summit and the Brussels NATO summit. This should be viewed as a message that Japan and the U.S. will shape the regional order, and smaller players do not have to concede to China’s one-sided coercion despite its enormous economic and military power.

Campbell and Doshi warn that if current regional order drifts into China’s shadow, “the dynamic region might split into spheres of influence: outside powers shut out, disputes resolved through force, economic coercion the norm, U.S. alliances weakened, and smaller states without autonomy and freedom to maneuver[2].” In fact, many smaller nations in Southeast Asia and Pacific Islands surely share those concerns. As Campbell and Doshi state, Japan and the U.S. need to present the strategic path to construct and maintain the regional order with legitimacy, which regional players would support. This soft power is an important objective of Japan-U.S. cooperation along with maintaining military balancing, and cooperation toward this objective should also be regarded as an important resource.

An important note for pursuing strategic objectives in geoeconomics is that the rules-based regional order, which has guaranteed free economic activity, is itself a critical resource as well as a strategic objective. Since China occasionally has challenged the regional order, observers tend to overlook the fact that the Chinese economy would be damaged if the current economic order were lost. China does not seem willing to play a role to set and maintain the regional economic order. In reality, the Chinese government is taking the course opposite that of reform and liberalization, which enabled China to develop its current competitive economy[6]. Although the Chinese government has asserted that it has the advantage in economic development over democratic states, history tells us that a political system that guarantees free economic activity seems to be a prerequisite for sustainable economic development[7]. In this sense, Japan and the U.S. should not worry too much over China’s growing economic influence over the long-term. Rather, Japan and the U.S. should worry whether they would spoil the existing free economic principles, which guarantee their own economic growth by competing with China’s economic influence over the region and limiting the inflow of critical military-use technology.

However, many data and analyses show that the military and economic balance favors China in the short-term if Japan and the U.S. do not do anything. Considering the budgetary limitations of Japan and the U.S. for peer military and economy competition with China, regional support for the Japan-U.S. common strategy as the legitimate regional order is critical. Japan and the U.S. need to present a clear path to their rational goal with attitude that minimizes economic damage to the regional economy.

The strategy of Japan and the U.S. should be acceptable to nations in the Indo-Pacific region, who “realize it is neither practical nor profitable to exclude Beijing from Asia’s vibrant future although they seek U.S. help to preserve their autonomy in the face of China’s rise[8].” In other words, the direction of the strategy should be to maintain the overall regional power balance and order for not only for Japan and the U.S. but also for those regional nations.

As Campbell and Doshi’s paper suggests, the past U.S. hegemonic leadership model, guaranteed by the country’s massive military and economic power, no longer fits the current regional balance, where “China spends more on its military than all its Indo-Pacific neighbors combined and it has invested in anti-access/area-denial weapons that threaten the viability of U.S. regional intervention[9].” A legitimate regional order led by Japan, the U.S., and the QUAD as a whole, should be the core for balancing Chinese challenges and attracting other regional players to maintain the status quo.

3．The relevant approach for attaining the strategic goal

How should Japan and the U.S. approach the strategic goal? A policy based solely on military balancing, while helpful in deterring Chinese military adventurism in the long run, would not be effective in changing China’s “wolf warrior” behavior, such as utilizing economic statecraft to attain its foreign policy objectives. Japan and the U.S. need to create a regional system, which would “provide Beijing with incentives to engage productively, and then collectively design penalties if China decides to take steps that threaten the larger order[10].”

There are critical issues that should be addressed to create an effective regional system to change Chinese behavior, to attract regional players by anticipating a legitimate regional order and even to coordinate potentially conflicting economic interests between Japan and the U.S. It is important to recognize a dilemma in the region, where an attractive, open regional order, which guarantees free economic activity, could give China more opportunity to access game-changing military and dual-use technology. Although the current U.S.-led selective decoupling policy based on FIRRMA (Foreign Investment Risk Review Modernization Act) or ECRA (Export Control Reform Act) is necessary to consider the mid-to-long-term military balance against China, policy coordination among the U.S. and QUAD partners (Japan, Australia and India) or South Korea is not easy since each country has close economic relations with China.

Further, policy coordination is further complicated when China is preparing the similar policies not only as countermeasures against the U.S., but also countries that follow the U.S. partial decoupling policy[11]. Even under such a difficult situation, Japan and the U.S. need to implement policies that regional allies and partners would support in the long-term.

Thus, the direction of the common strategy should be one that the U.S. and its allies and partners, as well as other “neutral” countries that do not want to be forced to choose either the U.S. or China but expect the stable regional order, would support without great economic damage. In this context, one should note U.S. Secretary of Defense Lloyd Austin’s speech in Singapore, in which he said, “We are not asking countries in the region to choose between the United States and China[12].” This is an important strategic approach that goes beyond rhetoric.

4．Tasks for attaining the strategic objective

Considering the aforementioned strategic objective and resources, there are major tasks to address to construct a more precise strategy. First, it is important to assess the trends of China’s future political leadership and economic growth. Although there are many unknows about China’s future, the short- and mid-term will see a continuation of the current direction set by President Xi Jinping and other leaders, in which Xi’s individual “charismatic” is central and there is more state control over businesses and the economy, despite its negative impact over the long-term. This will be coupled with assertive and expansive “wolf warrior” diplomacy. Even if economic growth is slowing, a tough posture toward China’s enemies would be an effective tool to turns people’s frustration away from the domestic economic and political contradictions and toward the outside. We need to assess what happens after China’s economic growth peaks. It is important to remember that this would signal not just a relative weakening of China’s economic strength, but also a dangerous period with growing incentives for Chinese leaders to utilize accumulated military resources to stir people’s nationalist pride in order to secure their political support.

Second, the U.S. and its military allies and partners like Japan need to start building an effective and efficient military posture to maintain military parity with China. It would be also important to improve interoperability between the U.S. and its allies. In this context, Japan must become more proactive in its military investment, which would help greatly to balance China. Japanese and U.S. leaders agreed to increase Japan’s military capabilities at the bilateral summit in April, 2021, and they should focus on capabilities that enhance deterrence at relatively low cost. This includes Japan’s development and deployment of the land-based short- and mid-range cruise and ballistic missiles.

Third, the U.S. and Japan need to address export controls that would prevent inflow of game-changing military and dual-use technology to China. This also requires an approach from the U.S. and Japan that maintains regional support for the future regional economic rules and order by not spoiling the basis of the free trade and liberal economy. In addition, excessive decoupling with China would damage both Japanese and the U.S. companies and create fiscal limitations on the pursuit of improved military capability. These are sensitive and critical agenda items that require coordination, urgent strategic planning, and mutual communication among all parties.

From this point on, Japan and the U.S. need to implement an export control regime that will prevent critical military and dual-use technology from reaching the Chinese market while minimizing the economic damage to the economies of the U.S. and its partners. The most important task is to identify game-changing technology and to assess the stage of military technology development in China. Japan and the U.S. need to manage the new export control regime by assessing the effectiveness of the current export control regime and the negative economic cost to both the U.S. and Japanese economy in advance.

Looking back through history, it is only matter of time for other countries to catch up with the most advanced military technology in use[13]. It is critical not to give an incentive to China to resort to its military advantage from game-changing technology to attain political goals. Even if China acquires a game-changing technology, we should try to shorten its advantageous period. Our observations and assessments of China’s military advancement are critical in this. At the same time, Japan and the U.S. would avoid unnecessary damage to their economies without excessive export regulations if they can halt the technology flow to China.

The current U.S. partial decoupling on semiconductors may include industrial competition policies rather than just national security-oriented export controls. Policymakers need to reconsider the basic stance that China can compete economically as long as it respects the international rules. A policy of excessive competition beyond the current trade rules would damage Japanese and U.S. legitimacy, as well as their actual economies and industries, lose sustainable regional support and give China a means to garner regional sympathy.

Japan and the U.S. need to focus on the target and objective of export and investment controls with closer communication and coordination with regional partners and avoid these unnecessary negative repercussions. This would be the most effective path to maintain the legitimate regional economic order as a strategic objective.

5．Proposals for the Japan-U.S. common strategy

Several conclusions emerge after reviewing the overall elements to plan and implement an effective and efficient common strategy toward China. Although the common strategic objective is relatively clear, too many resources and approaches exist in both the security and economic fields and are complexly intertwined. This often creates conflict, such as realism-oriented export controls versus liberal economic principles. There is a risk that some approaches (policies) may stray from the pursuit of the original strategic objective. For example, unexpected economic damage caused by a security-oriented strategy would sow the seeds of distrust among allies, or become an impediment to the implementation of the common strategy. Needless to say, this would be beneficial to China and sap the momentum of Japan and the U.S., costing them more supporters in the Indo-Pacific region.

To prevent such a negative result, Japan and the United States need to in advance engage in comprehensive discussions that will address the attainment of geopolitical and geoeconomics strategic goals. An effective strategy would appear only after full and deliberate discussions. Even before such discussions, I would like to present my own two hypothetical policy suggestions.

Japan should pursue rational military investments to defend its own territory and contribute to maintaining the regional balance, such as acquiring base-strike capability, rather than its past passive and incremental development of defense posture.

The U.S. should pursue a smart and effective partial decoupling policy toward China by considering the negative impact on allis’ and its own economy, particularly in light of the fact that it may cause financial restrictions on Japan’s military investment. Since competition with China could last as long as the Cold War period with the communist bloc, only a sustainable strategy and policy for the U.S. and its allies will be effective.

(2022/03/22)