This article is taken from World Energy (WE) number 43, "The Challenge". Read the magazine.

Japan is currently facing a very complex geopolitical scenario, one riddled with challenges. First, it is the Asian country that feels the Chinese threat most deeply in terms of security as well as  status and prestige. Additionally, the Trump Administration’s foreign policy has compounded some of the geopolitical and economic challenges caused by Beijing’s ascent.

The government of Prime Minister Shinzo Abe has responded to these challenges with a multidimensional strategy aimed at achieving a series of separate goals: (1) maintaining the cohesion of its alliance with the United States during the Trump presidency; (2) preserving the basic rules of the regional political and economic order, while expanding the role of Japan within it; (3) building a stable, albeit partly competitive, relationship with China.

China’s rise constitutes a major threat to Japan’s security and status in the region. The data on military spending gives a clear idea of the scale of China’s rising military might. In 2000, the official figure for China’s military budget was USD 22 billion. Today, that figure has risen to USD 182 billion. In 2000, Japan spent USD 42 billion, while today it spends around USD 48 billion.

In addition to the quantitative expansion of its military resources, the People’s Liberation Army has also launched a vast modernization program that includes development of its power projection capability across the “first island chain” stretching from Japan to Singapore. It has improved the technology of all the sectors of its armed forces and developed a navy with the capacity to challenge not only Japan’s but also the U.S. Navy’s Seventh Fleet deployed in the Pacific. This has enabled China to pursue a strategy aimed at gaining control of the South China Sea through the gradual occupation of disputed islands and reducing the credibility of the United States’ alliances with its Asian partners. Furthermore, Beijing and Tokyo are engaged in a territorial dispute involving the Senkaku-Diaoyu Islands. This dispute has regularly flared up in recent years and is a barometer of the state of bilateral relations between the two countries.

Against this background, Japan faces multiple challenges. First, in the space of a few years China has become the region’s leading military power, making Tokyo’s alliance with Washington vital for Japan’s security. Second, China’s growing military might and the hybrid strategy pursued in the South China Sea involve a dual risk, the possible interruption of the main maritime communication route linking Japan, the Middle East and Europe, in case of conflict escalation, and the possible erosion of credibility of America’s alliances in the region.

But China is not only a security problem. It also poses a threat to the status of Japan, which, since the Meiji restoration in the mid-19th century, has been the wealthiest and most advanced country in East Asia. This status is now being undermined by the rapid growth of the Chinese economy. In 1990, Japan’s GDP accounted for around 70 percent of the region’s wealth, while China’s accounted for only 10 percent. Today, China produces 50 percent of the region’s GDP. China has also played a leading role in global economic and financial processes, most notably through the New Silk Road project or Belt and Road Initiative, the creation of the Asian Infrastructure and Investment  Bank (AIIB) and its  backing of the major trade agreement known as Regional Comprehensive Economic Partnership (RCEP). 

During the last decade, and particularly since Shinzo Abe’s second term as prime minister, Japan has pursued different strategies to respond to China’s ascent. These strategies have focused on efforts at bolstering its alliance with the United States, which culminated in the approval of new guidelines for defense cooperation between the two countries in 2015, the building of bilateral and multilateral relations with other Asian partners such as through the “Quad” with Australia and India and the development of trans-Pacific forms of economic governance such as the Trans-Pacific Partnership (TPP).

Donald Trump’s election as president of the United States has put this multidimensional strategy under serious strain. Both as a presidential candidate and as U.S. president, Trump has repeatedly expressed his skepticism about alliances and has openly accused America’s leading European and Asian partners of exploiting alliances to avoid “paying the bill” in terms of military expenditure. Trump has also voiced his opposition to renewing America’s unconditional commitment to defending its allies, arguing that alliances should be made conditional on possible economic and trade concessions.

On the economic front, Trump immediately announced that the U.S. would withdraw from the TPP, a move widely interpreted in the region as benefiting Chinese state capitalism insofar as it brought to an end the attempt to shape the rules of regional economic integration in a way that would foster a form of free market capitalism. The Trump administration, moreover, has imposed tariffs against its allies, including Japan, hitting sectors like steel and aluminum.

Abe’s response has been very clear, with security as his top priority along with the preservation of Japan’s alliance with Washington. Following the November 2016 elections Abe immediately set about establishing a privileged personal relationship with Trump and separating the management of the alliance from the various political and economic problems created by the new American administration.

For the time being, Abe’s strategy has been successful in avoiding a deeper crisis in bilateral relations and has allayed Japanese fears of American disengagement. Also, developments that would be detrimental to Japan, such as a bilateral agreement between the United States and North Korea in the absence of denuclearization, seem less likely today than in the recent past.

This, however, has not completely dissipated the climate of uncertainty characterizing the alliance under President Trump’s Administration. On the one hand, Tokyo fears the danger of “entanglement” if the trade war with China were to lead to increased tension between the two global powers, including in the military sphere, on the other hand, Japan is concerned about the possibility of being “abandoned” if Trump were prepared to enter into agreements with Beijing that have the potential to damage Japanese interests and security.

The other pillars of Abe’s strategy are seen as complementary to Japan’s alliance with the United States and not as a substitute for it. First, Japan has promoted a range of bilateral and mini-lateral initiatives involving various partners in East and South-East Asia. These initiatives seek to contain the expansion of Chinese influence across the region in both the economic and defense spheres.

On the political-military front, Tokyo has strongly supported the idea of the “Quad,” the quadrilateral cooperation framework made up of the region’s democracies, namely Japan, the United States, India and Australia. The initiative’s lack of success has driven the Japanese government to focus its efforts on promoting new bilateral security relations. This has led to the signing of bilateral agreements with Australia, Vietnam, the Philippines, and Indonesia. Although these partnerships are not genuine alliances, they have fostered the development of new forms of cooperation, particularly in the areas of military training, maritime surveillance and patrolling, and naval technology cooperation. The Japanese effort to create a network of new defense ties is an attempt to help states, particularly in Southeast Asia, that lack the capability to stand up to Beijing’s aggressive stance.

In terms of economic governance, Japan has tried to react to the protectionist policies pursued by President Trump in different ways. First, it promoted the approval and signing of the new version of the TPP, known as TPP-11 or Comprehensive and Progressive Agreement for a Trans-Pacific Partnership. This agreement, which includes the former members of the TPP except for Washington, attempts to establish a “trans-Pacific” integration area based on a free market approach and with substantial restrictions on the role of the public sector and state-owned enterprises, thereby creating an unfavorable environment for Chinese state-owned enterprises. Although the TPP-11 is significant, its clout is significantly diminished by the absence of the United States.

Another major step is Japan’s ratification of two key agreements with the European Union, the Strategic Partnership Agreement and the Economic Partnership Agreement. Both agreements signal how Japan, like the European Union, is striving to strengthen the contemporary international order currently being undermined by both China’s ascent and the policies of the Trump Administration.

Despite the fact that China is a major challenge and a threat to Japan’s status in the region, the Japanese government is aware that it needs to build a stable and working, albeit partially competitive, relationship with Beijing. This need arises from the high level of interdependence between the two countries’ economies as well as from the fact that an escalation of military tensions would pose a serious threat to Japan’s security. Additionally, the climate of uncertainty characterizing the alliance with the United States under the Trump presidency makes the Japanese position even more precarious.

After six years without any bilateral state visits, the Chinese Premier Li Keqiang went on an official visit to Tokyo and Abe went to Beijing to mark the fortieth anniversary of the 1978 Treaty of Peace and Friendship. These visits have led to the signing of a series of agreements. The most significant among them is Japan’s turnabout on the Belt and Road project. Tokyo has decided to shift from implicitly opposing the project to participating with a substantial share of investments (up to USD 18 billion). There have also been several significant developments in the area of security. In June 2018, the two countries approved the establishment of a hotline between their armed forces aimed at averting unintentional conflict escalation.

Only in the medium to long term will it be possible to assess the real political and strategic significance of these agreements. To date, they seem to indicate that there is a will on both sides to control bilateral competition, limiting any knock-on effects it might have on the economic and security sphere. Only time will tell whether this is a bilateral detente driven by tensions between Washington and Beijing combined with the difficulties besetting the Japan-U.S. alliance, or whether it is a significant shift in bilateral relations.

Against this background, energy policy acquires an increasingly central role for Japan, a nation totally lacking in natural resources. Japan’s dependence on energy imports and its vulnerability to potential external shocks exacerbate the risks for the country.

The Fukushima disaster, and the earthquake and tsunami of March 11, 2011 that followed it, have aggravated this situation. The government was forced to shut down numerous nuclear power plants and to lower the output of others, causing Japan’s energy self-sufficiency rate to drop from 20 percent in 2010 to below 10 percent in the years following the disaster. This has led to a rise in electricity prices and to an increase in Japan’s dependence on oil imports from the Middle East as well as LNG imports from Qatar, Australia and Indonesia, making maritime transit routes through the South China Sea even more crucial. The Japanese government recently published a new energy plan called Strategic Energy Plan 2030. The plan calls for the drastic reduction of fossil fuel consumption, bringing oil consumption down to 3 percent of the country’s energy demand, while maintaining LNG and coal at around 25 percent. The plan stresses that without reintroducing substantial investments in nuclear energy it is impossible to achieve an energy mix that reduces dependence on fossil fuel and, consequently, lowers Japan’s vulnerability to external shocks. The Plan’s target is for nuclear energy to supply around 22 percent of the nation’s demand in 2030.

China’s ascent and the Trump Administration’s foreign policy have created a very difficult situation for Japan as it faces an increasingly assertive China on both the security and the economic front. The Abe government has put in place a multidimensional strategy that seeks to preserve Japan’s alliance with Washington, expand its cooperative ties with the other democracies in the region and regulate the competitive aspects of its relations with China. While this strategy has achieved significant results in the short and medium term, it cannot obscure the fact that, in the long term, Japan has a critical need for an American policy that can guarantee security and stability and promote an open system of economic governance.