Tensions between China and the United States, the world’s two largest economies, are disrupting the global economy. Even if the two reach some kind of bilateral settlement, there’s likely to be systemic damage — most likely they’ll do a deal outside of the established rules that undermines the multilateral trading system. Managing the rise of China is difficult enough for the global community but with the multilateral order under threat from President Donald Trump’s America First agenda, it is worse.
Japan is the world’s third-largest economy and one of America’s most important allies. It shares one of the world’s largest bilateral economic relationships with its neighbour China. That puts Japan in a unique if excruciatingly difficult position to navigate the defining challenges the global community faces today.
Simply getting through the Osaka G20 Summit is hardly likely to be enough. Osaka presents a strategic opportunity to save the multilateral trading order.
Japan knows firsthand the importance of multilateralism. Japan was shut out of international oil and raw materials markets during the interwar period, giving Japanese expansionists the upper hand in leading Japan down a devastating wartime imperialist path.
After World War II, Japan became an eager participant in multilateral institutions, viewing them as a way to rebuild ties with former wartime enemies and to quell regional fears about Japan’s rising power.
The multilateral trading system has allowed many countries in Asia to open up and to grow out of poverty and into prosperity through confident engagement in international commerce.
This week, Shiro Armstrong explains in our feature piece that ‘the World Trade Organization (WTO), at the core of the multilateral trading system, is in crisis’. The dispute settlement system will cease to have a binding appellate body by the end of 2019, with two of its three remaining judges set to end their terms. The usual number of judges is seven and three is the minimum needed for it to function.
There is a lot that every country would like to change about the WTO and Armstrong explains ‘there is now an opening for G20 leaders to set the strategic direction of reform for the WTO’ after the leaders’ communique from Argentina opened up that opportunity.
The G20 countries are now talking about what WTO reforms are needed, instead of whether they are needed at all.
Changing the WTO will take time. But clear strategic direction for change is needed to help alleviate some of the tensions between the world’s two largest economies and help the WTO address areas in which there are obvious inadequacies. Change will require commitment on the part of the major economies, represented by the G20, and deep engagement with China and the United States. Singling out and forcing change on China alone will not work in areas where many emerging market countries share the same interests as China and where China is the world’s largest trading nation. Entrenching a process for change in a multilateral setting will have more chance of success and will deliver better global outcomes than haggling between the United States and China.
Fears about China’s rise have caused the United States to shift from engagement to strategic competition with China. But President Trump’s version of strategic competition is disruptive and holds the global trading system hostage.
Led by Prime Minister Abe, Japan has thus far played a deft game at managing its difficult and intersecting relationships with the United States and China. Japan relies on the US nuclear umbrella for its security and Mr Trump has repeatedly questioned the worth of the US alliance with Japan. The important US economic relationship is also at stake. After stalling for over 18 months since Mr Trump came to office, Tokyo acquiesced to US demands for bilateral trade negotiations last year. It’s a defensive move that has for now secured a stay on US Section 232 tariffs on Japanese automobiles — under the guise of US national security concerns — that would hit Japan’s most important and internationally competitive industry hard.
The China–Japan relationship is as important as it is complicated. The two Asian giants share one of the largest economic relationships in the world, an unresolved history, disputed territory and competition for leadership in Asia. Prime Minister Abe’s visit to Beijing in October 2018 was the first state visit in seven years and set the relationship on the mend.
Success in managing relations with both the United States and China may not be enough as competition between them escalates. Japan and others will find it easier to deal with both the major powers, and the relationship between the two of them, if all these relationships are managed multilaterally. For Japan, the tendency to deal with each country bilaterally is fraught with huge risk.
It is easier to work with China on common interests in the global system such as trade and climate change together with other like-minded countries. That will make it easier to engage China by embedding it in more rules and international markets and to engage on issues such as the Belt and Road Initiative. Working with coalitions of countries, including US allies such as Australia, with an interest in protecting open markets will help withstand the pressure from Mr Trump’s America First agenda.
As Armstrong says, ‘Japan has the ability to mobilise and work with like-minded countries in Asia and around the world to preserve the open, liberal rules-based order and to set a direction going forward on strengthening it’.
Japan has played an until-recently unfamiliar leadership role in Asia Pacific affairs, filling some of the vacuum in leadership since the rise of Mr Trump. Very few thought the US-led Trans-Pacific Partnership (TPP) would survive the American-sized hole in the middle when Mr Trump took the United States out of it. But Japan stepped up to lead its conclusion as the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11).
Japan also concluded an economic partnership agreement with the European Union. Prime Minister Abe’s speech at Davos a week ago doubled down on Japan’s leadership role, with both the EU deal and TPP-11 sending the world a message on Japan and the region’s commitment to rules-based openness. Japan is also playing a more proactive role in a larger agreement in East Asia, having hosted the first ministerial meeting outside of ASEAN for the Regional Comprehensive Economic Partnership (RCEP) agreement last year. That agreement, being negotiated by the 10 ASEAN members as well as Australia, China, India, Japan, New Zealand and South Korea, will be a regional and global game changer.
Yet from his speech at Davos, Mr Abe’s focus on WTO reform appears to be in digital trade — an area that won’t offend interests — and industrial subsidies that, with the United States and Europe, are squarely targeted at China. Picking sides or ganging up on China in the G20 would risk the effectiveness of the forum and compromise Japan’s mediating role.
If Japan is going to help save the multilateral system, it needs to do better than muddle through its G20 presidency on WTO reform.
The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.
This is a very good editorial on this extremely important and pressing topic on the world stage and the board should be commended for its excellent work. The second last paragraph points potential further risks to not only the multilateral WTO trading system, but also the future, at least for short and possibly intermediate terms, of the world political and security systems.
If countries, particularly those of US allies, follow the US blindly without rational and careful thinking and analysis, the risks and likelihood of the world enters into another period of cold war will increase significantly, although there are many much broad relationships between China and all US allies, as well as with the the US itself that may limit the extent and length of a cold war between the US (likely including some of its allies) and China should such a cold war breaks out. A cold war is likely to serve the interests of few countries and will be detrimental to nearly all countries, the US included. It will damage probably every country in the world and the only difference is the degree of its damages.
Of course, China needs to consider how to spread the benefits of the successes in its economic development to the rest of the world and allay the concerns of some other countries over its rise and likely/potential adverse impacts or threats on others. The Chinese president has proposed humanity commonwealth that should be demonstrated and translated into acceptance by others through actions and behaviours by China.
Thanks for a thorough and insightful analysis. It was helpful to be reminded that Abe has demonstrated some leadership in his dealings with the TPP-11 and the EU. For someone who is as inherently cautious as he is and who is leading a country that does not have the clout of a major power like the USA, China, or even Russia these are two significant accomplishments.
His efforts to resolve Japan’s territorial conflicts with Russia have not accomplished much because Putin shows little desire to compromise. At least Abe walked away rather than give in to Putin’s demands.
His response to S Korea’s claims over forced labor during WW II and the naval radar incident have been less than inspiring. As he cannot seem to find a way to negotiate these issues with the ROK Abe is at least prudent to seek redress through the World Court.
The G20 is only a 2 day meeting. So the most Abe can accomplish would be to suggest trends that the counties should pursue. I agree that it would be best for him to try to avoid bilateral negotiations with Trump. These will only prove to be tumultuous and probably harmful to Japan’s interests. The best Abe can do would be to wait and hope that Trump loses the election in 2020. Then other possibilities might open up with a different leader in The White House. As Xi does not face such threats to his power Abe must find ways to tackle that relationship more effectively. Maybe engaging other countries in this process might be best. But it will be complex and thus time consuming.