With the conventional military power of China and the nuclear threat from North Korea both increasing, the security environment in Asia is becoming more challenging. For the United States and Japan, national security must begin with economic performance. Growing economies provide the resources needed to maintain adequate defense forces and to support foreign policy goals around the world. This means that the United States and Japan must maintain their world-class technologies and companies with a strong international market share in order to sustain the economic base for their strong security alliance.
China has made no secret of its economic ambitions. In documents such as “Made in China 2025” it lays out its intentions to dominate the most important technology areas of the future:
•New generation information technology
• High-end computerized machines and robots
• Space and aviation
• Maritime equipment and high-tech ships
• Advanced railway transportation equipment
• New energy and energy-saving vehicles
• Energy equipment
• Agricultural machines
• New materials
• Biopharma and high-tech medical devices
China’s ambitious list does not leave much high-technology space for the rest of the world. If China succeeds, it will not only dominate the world economy, but it will dominate the technologies that are important to military power in the future.
The Chinese model for achieving its economic goals is party-directed development, using close control of the internal Chinese market to nurture domestic companies and to learn from foreign companies. All government economic decisions – control of credit allocation, regulation, tariffs, and foreign investment rules – are made to increase the strength and market share of Chinese companies, both state-owned and private. With strong positions in the Chinese market, these high-tech champions will move abroad aggressively, competing with U.S., Japanese, and European companies throughout the world.
Japan, the United States, and Europe are looking at the same ten areas as the most important for future economic development, but they are counting on the private sector to drive advances in these sectors. In all advanced democracies, the government plays an important role in economic development through education, basic research and development, tax policy, and market regulation, for example. However, this role sets the framework for competitive private sector development. China, in contrast, chooses and supports specific national champions.
Although the U.S. and Japanese governments do not intervene in the economy in the way China does, they must be no less dedicated to fostering sustainable economic growth as a matter of national security. In Japan, this means sustaining and improving the policies begun under Abenomics to address Japan’s demographic problems, its underperformance in IT development and adoption, its agriculture and energy sector reforms, and its massive national debt. In the United States, this means improving work force education for the jobs of the future, repairing national infrastructure, addressing unsustainable government budget deficits, reversing the growing inequality of incomes, and ending dysfunction in the federal government.
The stakes for both countries could not be higher. If China’s mercantilist, state-driven approach to driving a large and complex economy proves superior to the U.S.-European-Japanese system of relying on the private sector, then China will become the world’s dominant economic and military power. Nation-state competition has always been about economic weight, and the 21st century will be no exception.
There are also important steps Japan, the United States, and Europe should take together in the economic area.
China’s state-encouraged intellectual property transfer and theft cost the United States alone several hundred billion dollars per year, and the costs to Japan and Europe are comparable. The three need to work together to protect intellectual property (IP) and penalize China’s forced transfer and theft. Appeals to the World Trade Organization are too uncertain and slow. The United States and Japan need to develop rapid procedures to deny their markets and financing to Chinese companies benefiting from international IP theft. The two nations need to force China to change its policies requiring international companies doing business in China to transfer IP to domestic partners. Coordinated action among the United States, Japan, and Europe will be far more effective than their individual efforts.
The United States and Japan need to restart mutually beneficial, multilateral trade agreements.
The United States and Japan, working with partners and allies in Asia and Europe, also need to restart mutually beneficial, multilateral trade agreements. The Trump administration has called attention to specific American job losses due to international trade agreements that have offset widespread gains to the American consumer. Expert analysis, formerly dismissive of the importance of these job losses, now recognizes their importance. There is an emerging political consensus that U.S. government policies are needed to address job loss— both jobs lost to trade and the far greater number of job losses from technological change. The United States, Japan, and Europe all can improve the contributions of trade to their economies by multilateral trade agreements that address non-trade barriers and include IP protection and high labor and environmental standards. These multilateral agreements will not in themselves eliminate the American trade deficit, but they will contribute substantially to an international economic system that will benefit developed and developing economies alike.
Finally, the United States, Japan, and Europe need to develop cooperative energy policies. The United States, as one of the world’s largest importers and producers of hydrocarbon energy, should take the lead on coordinated measures that can reduce the role of oil in the transportation sectors of the advanced economies, reduce the volatility of petroleum prices, and counteract the monopoly practices of OPEC and Russia. In the natural gas sector, coordinated increases of LNG capacity can reduce the economic and political vulnerability of Japan and Europe.
Ultimately it will be the economic performance of the U.S., Chinese, and Japanese economies that will determine the power balance in East Asia. All three countries face major challenges, and the countries that surmount them best will have the resources to protect their interests most effectively. Addressing the United States’ and Japan’s economic challenges is not just a matter of domestic benefit, it is a matter of national security.