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Hitachi Research Institute

Interview

Interviews with experts and opinion leaders from our research network

U.S.-China Power Swings and Japan
- Seize changes in the international order and see the direction for Japanese businesses -

Nearly 30 years after the end of the Cold War, the United States is shifting to restrictive national particularism and losing its global influence, while China is strengthening its presence. With the US and China confronting each other across the Pacific Ocean over global hegemony and the international order, it is increasingly more difficult to manage a business.
We invited Prof. Kiichi Fujiwara, Director of the Policy Alternatives Research Institute at the University of Tokyo, to discuss where our disorderly world is heading and how Japanese companies should respond to the resulting changes.

Prof. Kiichi Fujiwara

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Director of the Policy Alternatives Research Institute at the University of Tokyo
Professor of International Politics at the Graduate Schools of Law and Politics
Graduated from the University of Tokyo Faculty of Law, and left the University without a degree after completing doctoral coursework. Studied at Yale University Graduate School as a Fulbright scholar. Worked as an assistant at the Institute of Social Science, University of Tokyo. In his current post since 1999 after working as an assistant and assistant professor at the Faculty of Law & Economics, Chiba University, and then as assistant professor at the Institute of Social Science, University of Tokyo. Held positions as a visiting professor at the Asia Center, University of Philippines, and at the School of Advanced International Studies, Johns Hopkins University, and was selected as a fellow of the Woodrow Wilson International Center in Washington D.C. His works include “Remembering the War,” 2001; “A Democratic Empire,” 2002; “International Politics,” 2007; “Conditions of War,” 2013.

Major shift in the international order

Shirai:Hitachi has been expanding its business in an economy based on the free market and free trade. Following the open-door policy initiated by Deng Xiaoping in 1978, Hitachi became the first Japanese manufacturer to set up a factory to produce TVs in China in 1981.
Today, China has grown to become the world’s second largest economy and confronts the dominant US, forming a Group of Two (G2) with the US. Together they account for around 40% of global GDP and just under 50% of the world’s military expenditure. How do you see this development in the historical context?

Fujiwara:Since the end of the Cold War, the US, Europe, and Japan were standing shoulder to shoulder as democratic countries with free market economies, and were leading the expansion of a market economy. The free market economy system gradually penetrated into the Soviet Union and China, while the US, Europe, and Japan held sway over the world. On the military side, the Soviet Union steered away from confrontational policies against the US, and China became less of an adversary after Deng Xiaoping’s visit to the US, making it look as if the world was heading toward political and economic stability. Currently, China is on its way to emerging as a leader both economically and militarily, firmly pushing for policies in favor of itself, rather than those to keep pace with the US and Japan. It has started to pursue its own foreign policies in keeping with its rise as an economic giant, which is also reflected in its One Belt, One Road initiative. Within the world’s balance of power, China has risen while the US, Europe, and Japan have declined in relative terms. China is also increasingly powerful in military terms, enhancing the nation’s navy to become a world-class force, and expanding the area of operations from the Yellow Sea out to the open sea, including the Indian Ocean, the East and South China Seas, and waters off the Senkaku Islands.
Contrary to China’s upsurge, the world centered on the West had significant setbacks. Developed countries are now struggling to keep the pace of growth achieved by the integration of emerging economies.
The flying geese pattern of economic development was expected to last from the 1980s to the 1990s, in which Asian countries would continue to grow with Japan being a leading power. This is the model where Japan stands as a technological leader whose companies support successive countries. For example, when Japan produced VTRs, then Korea manufactured color TVs and Thailand made black-and-white TVs, thereby achieving a regional division of labor based on the different technological levels of the countries. China did not take part in this model against the odds, while companies are shifting from a vertical to a horizontal division of labor, resulting in Japan’s leadership becoming less stable. These changes in the order threaten the superiority of the leader.
Russia will face more significant geopolitical changes than China in the short term. It annexed Crimea, has practically conquered eastern Ukraine, and is sending a large number of troops to Syria.
Almost 30 years have passed since the end of the Cold War, and the global power relationships have changed, with the risk of political, economic, and military instability increasing.

Development in the US and China

Shirai:The US has been experiencing various changes both good and bad compared with the Obama era, with the Trump administration pursuing its “America First” policy, including the US-China trade negotiations and negotiations over North Korean denuclearization.
Do you think that the current Trump phenomenon will continue and that the US will go through substantial changes, or that the path will be corrected and the US will move back to where it was?

Fujiwara:In the year and a half since Donald Trump took his place in the White house, international relations have been buffeted by the US. But Trump’s presidential victory was not expected to change the US’s foreign policy significantly. This is because the trade rules and order and the international order were set in such a way that hugely benefited the US, and reviewing them would result in the US digging its own grave in the long run. Those systems, including the North Atlantic Treaty Organization (NATO), the US-Japan Security Treaty, and the US-Korea Mutual Defense Treaty, which constitute alliance networks centering on the US, provide the sources of its power. However, there were adjustments required in Trump supporters’ eyes. They are convinced that trade is a tool for other countries to exploit the American economy, except for some US companies, and the alliances are there to leverage American forces to ensure other countries’ security. President Trump, with their solid support, engaged himself in reviewing trade and alliance agreements, and recently surprisingly announced the imposition of additional import tariffs on European steel and aluminum.
There are two problems here. The first is a significant decline in predictability. Even if there are numerous possible policies, you can narrow them down when you can disregard those that would endanger vested interests. However, since a president who is busy pushing through policies based on narrow-minded public opinion took office, the variety of possibilities, the prediction range, has grown enormously. In the field of security, there are two paths that none of the former presidents took in regard to the policy toward North Korea for example. One is a pre-emptive strike on North Korea, and the other is a US-North Korea summit. Both of them were considered to be unfavorable for the US, and the situation remained deadlocked during the eight years of Obama’s presidency, but President Trump has already realized the latter and has been floating the idea of the former. This means that the stability of international institutions could be seriously damaged. International institutions include not only international organizations, such as the UN, but also the free trade framework and currency system. The US only has to take a position to review all of these frameworks to heavily influence the world.
The second is that there is public opinion (right-wing Republicans) in American society that endorses Donald Trump and gives him enough support to bring about victory. President Trump has no shortage of scandals including Russiagate, and it is not clear as of now whether his administration will be a long-lasting one. Trump supporters are older voters, and the majority of them are white. As the ratio of white people will gradually decline in terms of demographic composition, although they should not grow to a powerful group which will influence the vote, they will never disappear. Rather, they will raise their voices and take a tough stance because they expect a slow decline in their own numbers.

Shirai:While the Trump administration is inclined towards inward-looking nationalistic policies, China is, at least officially, demonstrating to the world its willingness to properly fulfill its role, including infrastructure development in central Asia and pushing forward with the Paris Agreement. But you can also see its agenda to extend its influence and interests externally behind China’s “One Belt, One Road” initiative. Also, within the business field, China has secured a stable supply of rare minerals necessary for electric vehicle (EV) production to prepare for the future, moving to beat the US, now holding the largest share in the EV market.
While it is not surprising at all for China with its enormous population to pursue its own interests and seek resources to continue growing, it also does not spare its energy to showcase to the world what it did to contribute.
The West, centered on the US, allies itself with countries that share its vision of freedom and democracy since the Marshall Plan, while China has an authoritarian government. These two different values have been co-existing. Japan started to move toward helping the One Belt, One Road initiative after keeping its wait and see stance. How do you think Japan should respond to China’s performance?

Fujiwara:The Japanese government’s policy toward China was vacillating between “economic opportunities” to “military threat” until recently, but it is shifting towards containing military threats, while deepening economic cooperation.
As China has various aspects, we roughly classify them into three categories here. The first is “China as a responsible great power.” China used to act as if it was playing a zero-sum game where it made its own points and would not cooperate unless it got what it wanted, but it has now joined the World Trade Organization (WTO) and embarked on activities to take a role in international organizations. Today, China’s support is integral to the UN’s peacekeeping operations. China has become a major contributor to the UN both militarily and financially since South Sudan’s civil war,and being actively involved in its operations while other countries are not. When you hear what President Xi Jinping says, you even get the impression that the free trade advocate would have been switched from the US to China. In the field of the environment, China is also far exceeding other countries in developing and expanding renewable energy.
The problem is that activities contradicting the idea of “a responsible great power” can be observed at the same time. As China has a history of having a weak economy, it was open to accept the rules of the US and Europe during the period of reform and opening-up. It also invited foreign funds by providing various incentives in the expectation of future growth, but the same incentives are not available now. In fact, there was a move against the US in the 1960s and 1970s when the Japanese economy emerged. Japan pressed its strong position over the steel trade and argued that Japan had competitive advantages and questioned the need for Japan to accept what the US said. The same is true for China, but the crucial difference between the two is the link between trade and economy, and the military. This is the second point.
When proposing investment in and assistance to countries of the One Belt, One Road regions, China provides loans so huge that it is impossible for developing countries to repay. For instance, China assisted with the construction of a port in Sri Lanka and secured the interest to use the port as collateral for the loan. How should Japan deal with China? First of all, it is not an option to cut business links with China. Even if you cut them, it doesn’t mean anything to resolve military tensions, and besides there are no markets that can replace China. Although India is expected to grow rapidly, its infrastructure is inadequate and domestic markets are limited. The Chinese economy slowed down compared with before the global financial crisis, but has not shown any disadvantages as seen after the collapse of bubbles. It is still achieving a growth surpassing the total of all other emerging countries put together. We need to be more alert to military threats from China than the US is, but the reason the Abe administration is currently leaning towards cooperating with China is because Xi Jinping’s government is stable.

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The third point is “China with stable government and high predictability.” The Hu Jintao administration concentrated on economic policy and was skewed toward an open economy when it comes to its relationship with the international trade system. I believe that the policies Hu Jintao implemented were appropriate for the Chinese economy at that time, and also beneficial for Japan, but his government itself was politically vulnerable and had only a weak grip on its army. In striking contrast, the Communist party controls both the nation’s army and the government under Xi’s leadership, providing stability. There was a time when the People’s Liberation Army built an oil platform in Vietnam’s exclusive economic zone without consulting the political bureau of the Communist party, but subsequently the bureau required the Army to dismantle it, which was a remarkable event. The political bureau regained its control over the army. While the military strategy of the People’s Liberation Army has not changed in terms of its ultimate aims, it appears that the Xi administration focuses on the stable governance over areas of influence already in hand. Their objectives and direction are clear, as China will not compromise on matters concerning Taiwan for example, and their predictability is higher than that of the US. On the other hand, they strive for broadly expanding their hegemony. There was a military officer in the past who argued that up to Hawaii was the US and anything after Hawaii to this side was China, but such an officer would be replaced now. This shift is another reason to believe that China is, if not an ideal partner, at least predictable. Japan takes a position to pursue relative stability rather than cooperate.
What are more worrying than Japan-China relations are US-China relations. There continues to be a conflicting debate within the US government about China’s military threats. This reflects a very vulnerable system of the Trump administration, and if US Secretary of State Mike Pompeo becomes mainstream for example, traditional foreign policy would emerge, keeping China firmly in check while seeking stability at the same time. China is intending to extend military control over neighboring regions and thus tightening the grip on the country is a wise option for now. Defense Secretary James Mattis and National Security Advisor John Bolton stand on the same side as Pompeo on this matter. The comments Mattis made at the 17th Asia Security Summit (Shangri-La Dialogue) held in Singapore in June to strongly criticize China’s military build-up were also aimed at the US government. With regard to economic activities, China is again the most problematic country for the US, engaging in unfair trade practices. The US may prioritize to review trade relations with China regardless of US companies being hit hard. If the US tightens economic and military restraints, China will then naturally strengthen its countermeasures. The tariffs on steel and aluminum currently drawing much attention are one such example. The trade dispute between these two countries can get worse and Japan may be affected as a result. Even if Japan gives priority to economic opportunities in China, they could be completely overturned depending on US policy. In any case, there are more elements of concern attached to the Trump administration than to the Xi government as the former is less predictable.

Shirai:China brought up a new framework for international cooperation with the One Belt, One Road initiative. To counter this, Japan, the US, Australia, and India, which all share the concept of liberalism, proposed the “Indo-Pacific strategy.” Do you think the Indo-Pacific strategy, a traditional economic partnership, will work effectively compared to One Belt, One Road?

Fujiwara:This is a confrontation over regional hegemony. I don’t think that China wants to become the great power to replace the US. For a start, even its leadership does not believe that their country has enough power to do so. The generations that promoted the open door policy still occupy the center roles within the political power game, and are very much aware of the country’s vulnerability. Japan recovered remarkably swiftly after having a major blow to its economy during the oil crisis, and that was due to the fact that the government, which understood its country’s weakness, promptly adopted industrial policies and guided companies’ investment activities. Companies were also quick to get support from the unions, and tackled wage cuts without firing, as well as the reconstruction of production. The current Chinese leadership has an awareness of weakness, such as Japan during an oil crisis, which gives the country a source of power to act against a crisis. That said,the time will come when those born in the one-child policy era, and believe “China is great,” control the politics. Only time will tell what it will be like then.
One Belt, One Road is an initiative to build an economic zone to secure markets with participating countries without any influence by the West, which is a solid policy with limited objectives, and thus it will be hard to extract concessions from China.
Iran and Pakistan, thought to be the major targets for this initiative, have always had close relationships with China. Particularly Iran as an energy supplier has only limited influence from the West. China targets those countries that it can build credibility with to strengthen cooperation.
One Belt, One Road should be better understood if we reflect on the role ASEAN (the Association of South-East Asian Nations) plays for Japan. ASEAN is a mega-market and supportive of Japan. When voting at the UN, it can be expected that ASEAN countries will vote the same way as Japan. Former Prime Minister Kiichi Miyazawa once said, “ASEAN is an electoral district of Japan,” which I thought described very well what ASEAN was for Japan. China is trying to extend its “electoral districts” with the One Belt, One Road initiative, which is an effective way to expand influence externally. It is not an easy job to counter this with the Indo-Pacific strategy. China provides significant economic incentives to each country involved in its Official Development Assistance (ODA). The US intended to engage with Pakistan as a part of an agreement in the war on terror, and to deepen its relationship with Pakistani foundations and NGOs, but the outcome was limited. It was because the incentives the US provided were not adequate. China’s strength is the power of incentives, i.e. money. China does not resort to its military power and threaten to make each country obey. What China does is to give support with vast amounts of funds, and pursue their interest even if the funds are wasted. There is no country to rival such a generous China. Even though Russia still has a strong influence on Azerbaijan, a former Soviet state, China’s presence is visible in Kazakhstan and Mongolia. Again, the countries that affect China’s power expansion are Iran and Pakistan. What is important is how the incentives we can provide match up with what China offers.

Outlook of trade policies

Shirai:The Trans-Pacific Partnership Agreement, which was led by the US and Japan, is the world’s highest-level Free Trade Agreements (FTA). It appeared that the underlying global trend continued to promote free trade for economic development, but the US withdrew from the TPP, which then had to start with 11 countries (TPP11). American trade policy is shifting from multilateral to bilateral negotiations. How do you think it will change in the mid to long term?

Fujiwara:The global trade order has just begun to change and the situation is expected to become increasingly more difficult. Before talking about the rationale behind this outlook, it has to be made clear that trade liberalization has progressed fairly far. Trade liberalization had almost been achieved before the TPP negotiations even started. Conversely, the only remaining areas include intellectual property rights, pork, and rice, which involve too many complicated political issues to make liberalization possible, and have merely limited benefits from trade expansion. For example, even if the economic policies of African countries shifted toward a closer alliance with the West, market growth may not be achieved in Kenya, Nigeria, and Sudan as their domestic markets are small.
Those groups that oppose trade liberalization usually consisted of left-leaning people, but that is changing. With Brexit, Conservative Brexiteers and the Labour left were both against the EU. Left-wing populism played the role of blocking the trade liberalization movement then, but today populism on both the left and right is gaining momentum. Even in Hungary and Poland, both of which clearly have been benefiting from joining the EU, right-wing populism is becoming more powerful.
In the US, millennials who support Bernie Sanders have mixed opinions on trade liberalization, which hardline conservative Trump supporters are concerned about. While there are some anti-trade liberalization groups in many developed countries, their number is relatively small in Japan. Most of the opposition consists of people involved in agriculture in Japan and thus, they didn’t become showstoppers with the TPP Agreement. The US withdrew from the TPP to oppose trade that was disadvantageous for the US, not trade liberalization. Free trade was never about being favorable or unfavorable for a particular side, but the US will not rejoin unless what was agreed under the TPP is significantly changed. Free trade that favors the US means reviewing every trade agreement. It is impossible to perform this collectively, or setting up a US-designated WTO, and therefore bilateral agreements become necessary. But such setup makes a trade system unstable. The reason why Akira Amari, a former Minister of Economy, Trade, and Industry, worked his fingers to the bone to advance the TPP is because continual reliance on bilateral agreements damages the stability of the system. Opposition within a country is unavoidable when it comes to trade, which is agreed in general but disagreed about in the details, and this is why the WTO was set up. The tendency to rely on bilateral agreements started before the Trump presidency, but what is happening now is watering down the trade system with bilateral agreements.Withdrawal from the TPP will certainly hurt the US badly. Japan accepted terms not beneficial for Japan during the TPP talks with the US because it assessed that achieving the TPP was advantageous as a whole. I think we are currently in a process of the gradual weakening of the collectively agreed trade system.

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To make the matters worse, this trend has an aspect that works in favor of economy in the short term. Markets have not shown any negative reaction even though they are aware that it will be extremely harmful for the economy in the long run and policies will retreat. They respond positively to the perspective that each country can review trade terms in such a way that are favorable to itself, and US stocks remain at high levels. The current trend may stimulate economy in the short term, it will ultimately result in a disadvantageous vicious circle. It is the first time since the commencement of the WTO that actions were taken under the authority granted by Section 301 of the US Trade Act of 1974, which received attention during Japan-US trade war in the past.
Tough times are expected in the EU where a recession is progressing. Even without any more countries leaving the EU, economic growth will stagnate and be seriously damaged if the trade order within the area becomes unstable.

Shirai:The US runs the largest trade deficit with China, but 60% of Chinese exports to the US come from multinational enterprises, most of which are American, meaning both countries are strongly dependent on each other. The US is broadening the range of sanctions targets from existing trade goods such as steel to communication/high-tech products, and condemning China’s investment policy, industrial development policy including “Made in China 2025,” and technology transfer demands. US-China trade friction could spread to Japan and shake the global economy. How do you see the US-China trade issues evolving, and what influence should we expect on Japan?

Fujiwara:US-China trade friction is the biggest challenge in the short term as Japan could be targeted for sanctions as well.But in reality, Japan’s steel/aluminum exports to the US are not very large, and it is likely that the Trump administration is over-assessing the possible impact on the US market. We cannot rule out the possibility of them making a policy based on a wrong perception, however.
To change the angle a little, let’s think about who makes policies in the Trump administration. It cannot be President Trump himself, and the picture gradually emerging is that cabinet ministers and professionals in each area propose policies and the President finds fault in them. The President sometimes even announces policies that professionals disagree with. It is unlikely that setting tariffs on steel/aluminum was a policy that was thoroughly discussed, as you would expect professionals to carefully consider and seek to extract concessions before officially imposing them. In fact, the notable characteristic of the Trump administration is that the President announces policies via Twitter® and changes the direction in the midst of talks behind the scenes, which presents a decisive difference from the Reagan administration. The situation in the Reagan administration was that the president took leadership in line with the policies designed by practitioners.
The US is tightening regulations against China’s unfair trade practices and a trade war would be unavoidable. That said, the US pressing hard on China will also contribute to creating Chinese markets that are more desirable for Japan. This is also an opportunity to demand that China engage in fair trade practices leveraging US policy.
China is now slowly reviewing its excessive public investment. Boosting public investment was a way to avert the damage it suffered from the global financial crisis. It also cooperated with expanding trade, and its reputation of relying on vast public investment is fading, though the chance of China accepting agreements that can be unfavorable for its companies is actually lower than ever. With the US imposing sanctions, China will head for economic management focusing on domestic markets, leading to a sharp fall in international trade volumes. If you compare the US’s reliance on Chinese trade and that of China on the US, the latter is still higher, which may be a reason to expect China would give in and compromise under US pressure. However, China’s dependence on the US is rapidly declining and thus it could decide that it is not necessary to accept sanctions. With talks behind the scenes continuing, China is currently explicit about not agreeing with the terms the US demands. Japan could also be targeted for sanctions, but the most serious problem is for trade to shrink and the global economy to be adversely affected.

Innovation in the digital age

Shirai:During economic development with the flying geese pattern, technological innovation came from developed countries. When the IT era arrived, the US became “the source of innovation,” with cutting-edge technologies being developed one after another in places like Silicon Valley. Up until around 2012, a success story for a Chinese student in the US was to start a business there including Silicon Valley, rather than returning home. But recently, “innovate in the US, commercialize in China” is becoming a trend. There are increasing number of cases where Chinese youngsters start businesses and achieve a great triumph in China after studying in the US, and it appears that the concept of innovation is beginning to change. In the digital industry in particular, you can start a business with just one idea without major investment as the marginal cost is declining. I think we will more often see China, which strongly demands that foreign companies transfer technologies, leading the world with innovation in forms not seen before. What is your opinion on how we should look at innovation and intellectual property protection in the borderless era?

Fujiwara:Amazon and Google® come from the US, but in China, there is a movement striving to take the initiative in this platform business in recent years.
Imitate the platforms that succeeded in the US, adjust them to match with Chinese conditions and increase domestic market share. This pattern has been seen before in other areas including high-speed rail. It would be easy to understand if you think the current development is a digital version of this pattern.
But it is wrong to assume that breaching intellectual property rights through business imitation is solely what China does. Chinese science and technology is advancing remarkably at the same time, and the number of research papers published in physics is now surpassing that of the US. With domestic technological capabilities dramatically improving, it may not be too long before China creates new innovation. It is also possible that one day we will learn from technologies developed by China.
Japan should engage itself in enhancing capabilities to develop technologies together with both American and Chinese researchers so that it can take the lead in future technology systems. Not leaving it to China and the US is essential. Japan still holds a predominant position in the industrial technology sector, including high efficiency and low-cost production. China is not yet ready to chase Japan in this field, though its importance is decreasing in relative terms. The pace of change is extremely fast, and I feel a sense of urgency for this very difficult situation at present where Japan cannot get involved in the platform business with any initiatives.

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Shirai:As digitalization progresses, new words are emerging such as “data capitalism,” where data is the source of monetization. US-China competition is so severe in digital business that the US tightens the regulations set by the Committee on Foreign Investment in the United States (CFIUS), while China prohibits foreign companies from moving domestic data out of the country under its cyber security law, and gives incentives to domestic enterprises in the high-tech field. Meanwhile, the EU’s General Data Protection Regulation (GDPR) restricts transfers of personal data outside the EU, and allows data transfer within the EU in machine-readable format. While the world is moving towards the standardization of rules, policies on data differ in each of the US, China, Europe, and Japan.
Chinese institutions and systems that were deemed variant appear to be more compatible with data capitalism. The Chinese government can utilize data thoroughly and freely. A typical example to demonstrate this is the surveillance system covering the whole country. Every detail is recorded as an image, and one particular person can be found among a great number of people. What is regarded as an invasion of privacy in the West contributes to maintaining security in China, where benefits of a digital society are expanded by adopting face recognition technology and IT technologies. Can you comment on the possible influence of data and privacy protection policies on businesses in the future?

Fujiwara:Chinese data regulations and personal data protection are completely different from those of the West and Japan. I don’t think that China can continue to manage and control data as it does now. There are two reasons. One is that total control of data becomes more difficult to achieve as the liberalization of society moves fast, resulting in a cat-and-mouse game.
Another is information about financial trading. The US acquires all the information on dollar settlements in the world, with money laundering being exposed and a domestic law being applied in some instances.
The aspect of sanctions against Iran that had great power of influence is the restrictions on foreign financial institutions engaging in businesses with Iran, rather than the economic sanctions themselves. Such sanctions are called “secondary sanctions.” The US is also in control of information on China’s transactions with North Korea and Iran, against which the West imposes sanctions. Regulations on privacy protection and personal data leakage are strict in Japan, and it is not clear how the country will be affected by the global movement. But the regulations on financial transactions with Iran will become an important issue between the US and Japan, separately from the problems between the US and China.

Direction Japan should take

Shirai:Both the US and China are important markets for Japanese companies, which have many business and production bases in these countries. The era when the US stood in an overwhelmingly dominant position against China has come to an end, and many different variations can be expected now including the relationship, in which the both countries confront each other on the surface but strategically ally themselves in secret. How do you think Japanese companies should respond to both the US and China with mega markets?

Fujiwara:Japan has a huge domestic market but economic activities center on trade. Standing on the assumption of being a trade-oriented nation, we must not divert ourselves from a standpoint of believing in the importance of the free trade system. There is a possibility also in Japan of the emergence of populism on both the left and the right.
As for the relationship with the US, the situation is forcing us to prepare ourselves for restrictions such as higher import tariffs imposed by the US. The US, in the 1960s and 1970s, pressured for opening markets while presenting signs of moving back to the protectionism, and now is moving more toward protectionist policies. The US protecting its domestic markets would be a violation of the WTO principles in any case, and thus Japan should challenge it multilaterally, not unilaterally. In individual talks, Japan will be asked for considerations by the US, which makes it difficult to continue with countermeasures. Then there will inevitably be an argument for compromise insisting that it is the only way to maintain the access to the US market, but the free trade system will quickly be weakened if that happens. Compromise on free trade is the line that Japan must not cross considering this principle. Challenging as a team with other countries is required not because international cooperation has more importance than benefits of individual countries, but because challenge is never possible unless it is done multilaterally. A number moves the trade system and the side with majority gains overwhelming power. That is, a collective action of a group that has a large market share plays a crucial role in influencing trade policies. It is also important to file with the WTO as necessary. If the current situation continues, Europe will be the first among the G8 countries to act against the US. Doing so, Europe will probably stick to a position of being unable to agree with trade restrictions undertaken by the US. China’s policy to maintain free trade is welcome for Japan. Japan should consistently argue for free trade within its relationship with China, and try to act collectively with other countries when China significantly deviates from the rules. The TPP’s progress also has the potential to keep China in check. There were two perceptions about the TPP from the start, namely “creating a mega market without China” and “putting pressure on China to change its system,” which have completely different intentions. The former is not a desirable strategic partnership as it comes with the risk of losing a huge market. China made changes to its legal system when it joined the WTO, and the nation could participate in the TPP if that flow continues. But stable trade cannot be expected unless China sincerely tackles issues including intellectual property rights and restrictions on foreign direct investment.

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Shifting gradually towards a cooperative path with China is a wise move on the part of the Abe administration. In cooperating, Japan should explicitly point out what cannot be accepted. The power of influence of Japan alone is limited, and working together with other countries is essential. With regard to the TPP, Australia and Canada are the countries Japan should ally itself with. Australia is dependent on China with resource exports, while showing strong resentment against unfair trade practices at the same time. Canada also has an increasingly deeper trade relationship with China with the experience of trade frictions. When confronting with trade restrictions of the US, it is desirable to strengthen partnerships with the EU, Australia, and Canada, and then proceed. If possible, it would be better to make requests for Chinese trade policy multilaterally after the US rejoins the TPP. The Trump administration took the same strategy and succeeded in the past. The current individual sanctions need to be corrected.

Shirai:We live in a world where we solve simultaneous equations that are more complicated than ever, while comprehending the reality of international relations at the same time.

Fujiwara:Yes, I think that’s true. It may have become easier to tackle them now that their difficulty has been exposed.
Shirai:Thank you for taking time out of your busy schedule to talk with me.

Fujiwara:Thank you.

Editor's Postscript

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I interviewed Prof. Fujiwara from the University of Tokyo, who is an expert in international politics, and shared his insights on a broad range of topics from changes in the international order to the balance of power in trade policies and innovation. His comments about how Japan should position itself as a trade-oriented nation against the background of other countries’ responses to free trade were very inspiring and stimulated many ideas.
Prof. Fujiwara also reminded me of the importance of striving for joint development as a company, leveraging industrial technologies of both the US and China in addition to Japan in this digital era.