Japan Fears US Push to Isolate China, Panelists Say

Japan has encouraged its businesses to reshore -- and there's some concern that's not happening fast enough -- but, according to University of Southern California professor Saori Katada, "What Japan wants is to have China be part of the network in some ways, but have China controlled, so that it obviously doesn't abuse or weaponize interdependence, and abides by the rules."

Katada said that Japanese policymakers believe there are some Chinese officials that want to reform China's economy, given its application to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which has disciplines on state-owned firms.

"Isolating China is the last thing Japan wants to do," she said, as many Japanese companies depend on China, not just for locating factories, but also for sales.

If the "U.S. pushes strongly to contain and isolate China, that becomes worrisome for Japan," she said.

Katada was one of three panelists hosted by the Japan-America Society of Washington, D.C., and the Wilson Center on a panel discussion on economic security and trade interests between Japan and the United States.

David Boling, director of Japan and Asian trade at political risk advisory firm Eurasia Group, said political support in Washington for market liberalization has faded to insignificance.

Boling, who worked on the TPP at the Office of the U.S. Trade Representative, as well as the Japan mini deal during the Trump administration, said the U.S. has "gone from being a proponent of free trade to a proponent of secure trade."

Once, trade negotiations were to knock down tariffs and non-tariff barriers in the hopes of opening markets to exports, making imports cheaper, and thereby, improving consumers' buying power.

"That’s not in fashion right now. I think it started to crumble in 2015 when TPP was starting to get a lot of opposition in Congress," he said. "Trade is subservient to national security and economic security these days."

He added, "It’s about outbound investment rules, it’s about export controls. This makes the Commerce Department much more of a lead" player in trade. He called USTR "diminished" because it's not negotiating new trade deals anymore.

He said China is the catalyst for the change, and policymakers feel they're behind in addressing China's threat to economic security.

Years ago, the Committee on Foreign Investment in the United States, or CFIUS, was quiet. Now, he said, law firms have "built up new practices on CFIUS."

While he agreed with other panelists that Japan is a key ally in the export control approach, "where we are out of sync with Japan is the use of tariffs."

He noted that former President Donald Trump called himself "Mr. Tariff Man," and the Biden administration hasn't taken most of those tariffs away.

"I think it’s important to recognize the increased clout of organized labor," he said. "I think labor pretty much has a veto these days when it comes to labor policy."

He said that unions and Trump looked at trade in the same way.

Kotaro Shiojiri, a Japan Foundation visiting fellow, said that Japan dislikes U.S. unilateralism. Both he and Katada say Japan wants to shore up international rules, including through the World Trade Organization.

Boling said that while Biden has been fairly protectionist, the risk of a return to trade tensions with Japan over trade deficits, as consumed the U.S. in the 1980s, is "pretty low."

Still, he noted that the proposed purchase of U.S. Steel by Nippon Steel is politically difficult for Biden.

"It goes back to my point about the importance of organized labor. The Steelworkers are against this deal. I don’t think anyone who seriously looks at this thinks Japan is a national security threat, but the politics are not good."