Japan’s opaque economic security policy agenda

By Toshiya Takahashi, Shoin University

Economic security is becoming crucial to Japan’s national security portfolio. In October 2021, the Kishida government created a ministerial position for economic security. One month later, it decided to subsidise half of the estimated US$7 billion investment by Taiwan Semiconductor Manufacturing Company to construct a semiconductor plant in Kumamoto prefecture.

The government is discussing a new ‘economic security law’ to submit to the National Diet in 2022, which would strengthen supply chains and protect Japanese patents. This legislation is targeted at China’s increasing economic clout over Japanese companies and the risk of trade disruption as experienced when China halted shipments of rare earth elements in 2010 and during the shortage of medical supplies at the beginning of the COVID-19 pandemic.

Japan’s economic security used to be identified with resource security due to its economic dependence on the import of natural resources such as crude oil and food. This vulnerability became clear during the two oil shocks in the 1970s. A 1980 report of comprehensive security listed in tandem with military power energy and food security as key pillars of Japan’s security.

In the face of China’s increasing economic influence and Japan’s relative decline in industrial competition, Tokyo’s approach to economic security has changed. Leading proponents of a stronger national security posture include former Liberal Democratic Party (LDP) secretary-general Akira Amari, former prime minister Shinzo Abe and other policymakers connected to the Minister of Economy, Trade and Industry (METI).

They approach China’s economic coercion from a national security perspective, pointing to the risks of disrupting of semiconductor supplies from Taiwan, export restrictions on rare-earths, purchases of Japanese companies and land, and economic espionage. They also seek to enhance Japanese competitiveness in key industries through state intervention.

This policy orientation began well before Kishida’s premiership. Under former prime minister Shinzo Abe, an economic security section was created in the National Security Secretariat in November 2019. The Foreign Exchange and Foreign Trade Act was revised in October 2019 to enable the Japanese government to check China’s state-owned enterprises (SOEs) investments or purchases of Japanese companies. In 2020, METI created a US$2.2 billion subsidy to encourage Japanese companies to move their plants from China to Japan or ASEAN as part of efforts to construct resilient supply chains.

The LDP’s influential Policy Research Council announced a proposal for Japan’s economic security strategy in late 2020, asserting that economic power remained the foundation of Japanese security. Influenced by the idea of the US national security innovation base, the LDP proposal delineated energy, telecommunications, transport, food, medicine, finance, and construction as strategic industries and emphasised policies to reinforce their resilience against economic risks.

The Kishida government’s new economic security policy faces no domestic opposition at this stage, while Japan’s business community has expressed belated concerns with government restrictions on the disclosure of patents. Supporters consider the new law will strengthen protections for Japanese industries, assets, and technologies from possible foreign manoeuvres and foster the development of key industries to maintain Japanese companies’ competitive advantages.

Whether this state intervention policy will enhance Japan’s economic security remains to be seen. While political appeals to security in domestic politics are strong, there has been a lack of domestic debate on the policy.

Japan’s new economic security policy has been guided by the government’s preoccupation with past success in the field of industrial policy. METI is the successor to the Ministry of International Trade and Industry, which played a leading role in industrial policy in the post-war period of Japan’s high growth. Though state regulations of the Japanese economy were wound back during the 1990s, METI and its affiliated lawmakers continue to be strong believers in resurrecting industrial policies. Espousing economic security, METI seeks to intervene in strategically important industries to avert national risks and enhance national competitiveness.

Japan’s image of economic security is narrowly identified with an idea of autonomous supply chains within Japan or among allies. This image is unrealistic given Japan’s economic interdependence with China and the United States. Even the United States faces difficulty in building resilient and autonomous supply chains. Japanese proponents do not necessarily advocate decoupling from China, but this idea may weaken the importance of thinking on Japan–China and the multilateral consensus on supply chain security in policy circles.

While economic security is a buzzword in Japan, the present debate pays little attention to the ambiguous and contested nature of national security. Tokyo’s concerns come from the perception of Japan’s declining economic power and technological edge, particularly in semiconductor and lithium battery production. Economic security as national security justifies greater state invention in economic fields, but business competitiveness is a product of reducing trade and investment regulations and promoting technological cooperation among different economies.

While the balance between protecting domestic industries and making them globally competitive is complex, economic security policy asserts that both are feasible. Whether Japan’s new economic security policy can achieve its goals remains unclear, but as a doctrine economic security provides a pervasive rationale for state intervention to resurrect Japan’s competitiveness. The blind spot in Japan’s economic security planning is that it neglects the significance of social and cultural constraints on innovation and entrepreneurship central to the heath of Japanese industry.

Toshiya Takahashi is Associate Professor of International Relations at Shoin University.

This article originally appeared on EastAsiaForum on December 13, 2021.