On October 4, Liberal Democratic Party President Fumio Kishida became Japan’s 100th Prime Minister and launched his new administration. The Kishida Administration is the first ever to appoint a minister whose official portfolio includes responsibility for economic security. Japan is now living in an era where economic interests are fully leveraged to bolster security.

Economic statecraft and its context

Economic statecraft is a diplomatic strategy utilizing economic tools to gain an advantage and increase a nation’s influence in the international community. In Japan, “security” has been portrayed with military implications as typified by the Japan-US Security Treaty. However, as China has risen, the United States, EU, and other nations have actively sought economic hegemony in production, trade, regulation, supply chain, and other elements.

As alluded to in its February executive order, the Biden Administration has expressed its intent to decouple the supply chain from China. The administration has been moving particularly to strengthen regulation of the supply chain for semiconductors and rare earths. The United States is forecast to put pressure on Japan’s industrial sector, which has strong economic ties and trade with China, to align itself with the United States in containing China.

Meanwhile, having adopted a strategy of military-civil fusion as it seeks to apply advanced technologies for military use, China seeks to be a great power, dividing hegemony with the United States across the world. This is an important strategy as the pursuit of economic security based on its “Belt and Road Initiative, ” “Made in China 2025,” and other strategies is a rational course of action for the country.

Japanese companies face challenge in the midst of economic statecraft

The Japan-US Security Treaty ensures Japan’s security in terms of defense. On the other hand, China is an important trading partner to Japan. China currently accounts for one-fourth of Japan’s external trade with an approximately 24% share while the United States holds roughly 15%. Thus, when one considers the scale and return from the Chinese market, strong arguments can be heard emanating from Japan’s business community to continue economic relationships with China. Foreign investors have also expressed concern about the Japanese government tightening regulations on trade with China.

In his policy speech before the Diet, Prime Minister Kishida set economic security as one pillar of his growth strategy. Nevertheless, it is information that is important for Japanese companies. They excel at establishing systems, setting up dedicated departments, preparing manuals, and other such tasks. However, security clearance, early detection of business risk, and other such activities are not their strong suit. Moving forward, Japanese companies will need to routinely collect and analyze information about United States’ and China’s policies as to how these relate to their company’s business environment and challenges, as well as enhance their sensitivity to the tide in the political climate. In the months and years ahead, this will become increasingly important as will strengthening public affairs through the development of systems, training of executives and employees, and liaisons with governments and industry.