Senkaku Islands

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Will Japan benefit from the New Cold War?

Published by Anonymous (not verified) on Sun, 16/06/2019 - 9:24am in

Published in  the Nikkei Asian Review  12/6/2019

“The Cold War is over and Japan won” – that was the verdict of revisionist Japan scholar Chalmers Johnson in 1991. Something of an exaggeration, to be sure, but it remains the case that Japan prospered mightily in the decades between the Korean War and the fall of the Berlin Wall.

In the subsequent two decades, not so much. As far as Japan was concerned, “the end of history”, as celebrated by political scientist Francis Fukuyama in his 1992 book of the same name, ushered in an era of economic malaise, political confusion and diminution of international stature.

Then, in the last seven years, at a time of mounting regional tensions, Japan has recovered some of its old mojo. Economic conditions have improved markedly; Japan’s cultural and commercial footprint has grown thanks to tourism and success stories such as Uniqlo. Japanese politics has been stable under Prime Minister Shinzo Abe, described by Australian Prime Minister Scott Morrison as the senior figure in the region, with “a real wisdom about him.”

Correlation is not causation. Japan’s Godzilla-sized bubble and bust cycle was largely self-inflicted and recovery from the devastation of war was something that was bound to happen one way or the other. Yet there can be little doubt that the start of the Cold War had an enormous impact on US-Japan relations.

The idea, widely held by influential Americans in the early post-war years, that Japan (and Germany) should be returned to a pastoral, pre-industrial state no longer made sense. Instead, access to the enormous US consumer market helped Japan to develop into a bulwark of capitalist prosperity on the Soviet Union’s eastern flank.

Today’s world is very different, but the increasingly fractious relations between the US and China have triggered a spate of Cold War comparisons. Testifying before the Senate Intelligence Committee, FBI director Christopher Wray described the China threat as “not just a whole-of-government threat but a whole-of-society threat at their end” which will require “a whole-of-society response by us.”

According to hedge fund titan Ray Dalio, “this will be a long ideological war.” Meanwhile, China’s ambassador to the EU talks of the US blacklisting of Huawei in terms of “a digital iron curtain,” and President Xi Jinping calls for China to embark on “a new long march.”

Xi and Mao memorabilia Xi and Mao memorabilia

Beyond Trump

All the above suggests that the confrontation between China and the US will long outlast the bandwidth-hogging presence of President Donald Trump. No doubt there will be phases of détente and compromise, but the fundamental incompatibility of national interests will ensure that the strategic rivalry persists. China cannot achieve regional hegemony while the US has a powerful military and commercial presence in East Asia.

Just as in the original Cold War, there will be alliances and non-aligned countries. Geographical distance from China will likely be a crucial factor. For European countries, the commercial opportunities of the Chinese market will far outweigh any sense of threat. For China’s Asian neighbours, the risks are more evenly balanced. Many would prefer to hedge their bets, but ultimately may have to confront binary choices on payment systems, internet regulation, communications infrastructure, and sources of finance

For Japan, by contrast, the choice is no choice at all. Ever since the dispute over ownership of the Senkaku Islands flared up in 2012 – with riots, arson attacks and consumer boycotts orchestrated by the Chinese authorities – Japan’s pro-China business lobby has been on the back foot. Hedging has meant pouring direct investment into alternative destinations, such as Vietnam and Myanmar, and repatriating production to new facilities in Japan, as companies such as Casio, Honda and Unicharm are doing.

More broadly, China’s shift from Deng Xiaoping’s “peaceful rise” strategy to aggressive power projection has validated the US-Japan security relationship for decades to come. Interoperability with US forces has already advanced significantly, and security co-operation with other Asian nations, such as India and Vietnam, will be on the menu soon. Revision of Japan’s pacifist constitution is merely a question of time.

Malabar joint naval exercises - India, Japan, US Malabar joint naval exercises – India, Japan, US

The Return of Cocom?

Such is the degree of Chinese integration into the world economy that a total roll-back back of trade and investment flows is a near-impossibility. Instead, what we are likely to see is a cordoning-off of sensitive areas, particularly high tech, and the development of competing, incompatible standards on either side of the new digital curtain.

American and Japanese companies that have supplied leading edge products to Chinese users– in fields like robotics, semiconductor manufacturing equipment and highly specialized processing devices – may find themselves subject to the equivalent of Cold War 1’s Cocom (Coordinating Committee for Multilateral Export Controls).

If Team China is set on achieving autarky in key industrial sectors – as the “Made in China 2025” program indicates – then Team US / Japan may decide to do the same. In times of war, both hot and cold, strategic goals override free market ideology. Japan of course is no stranger to government-led industrial policy initiatives, but neither is the US, with the Apollo space program being the classic example.

Could a future US President – or Japanese prime minister – ignite a sense of national purpose by setting a high-tech goal equivalent to President Kennedy’s 1961 pledge to put a man on the moon?

Has Japan got the Intelligence?

If globalization was deflationary, could de-globalization – repatriating production, targeting self-sufficiency in key areas, sponsoring public-private initiatives – prove to be inflationary? Admittedly that is not how it looks at the moment, as the prospect of tit-for-tat tariffs has sapped confidence and driven global bond yields down to vanishing point.

That may not last, though.  Conflict is almost always inflationary. Indeed, it is the Second World War that is usually credited with ending deflationary conditions in the United States and elsewhere. For the United States, confrontation with China is likely to mean more government spending on big projects, a reversal of the “peace dividend” and import substitution leading to higher input prices. For Japan it could well mean a decisive end to deflation.

The emergence of a powerful, expansionary China represents a multi-level existential threat to Japanese autonomy. The response needs to be multi-level too. Japan will need to do whatever it takes to keep the US engaged in Asia. Beyond that, Japan needs to continue and strengthen the pro-active diplomacy that has marked the Abe years, constructing exchanges, partnerships and alliances with the many sympathetic countries in the region.

The last Cold War was marked by espionage, subversion, intense propaganda and proxy wars. The new one is unlikely to be different. Indeed, North Korea could be considered as playing the part of Cuba in a long-drawn out missile crisis. Japan will need to have the intelligence resources to compete on the same terms.

In terms of soft power projection, it needs a smart public relations strategy that focusses the world’s attention on contemporary realities, not – as China and its sympathizers would prefer – on the events of 80 years ago.

A timely storm wrecks the Mongol fleet A timely storm wrecks the Mongol fleet

Cold War.2 will have costs for everyone, Japan included. But strategically it could be a twenty first century version of the “wind of the gods” that saved Japan from Kublai Khan’s Mongol fleet in the thirteenth century. At the same time, it could bring an end to the long period of zero interest rates and change the psychological climate too, as necessity becomes the midwife to a more outward-looking, assertive Japan.