Richard Gray

Welcome to today's episode of Pacific Polarity. Today we're speaking with Dr. Kazuto Suzuki, who is director of the Institute of Geoeconomics at the International House of Japan and professor at the Graduate School of Public Policy at the University of Tokyo. Dr. Suzuki also serves as president of the Japan Association of International Security and Trade, and an advisor of the Japanese government on National Space Policy Committee of the Cabinet Office. Dr. Suzuki, pleasure to be speaking with you.

Kazuto Suzuki

Pleasure is all mine. Thank you.

Richard Gray

Recently in Japan Times, you argued that we were witnessing a transition from a defensive economic security to an approach of geoeconomics, which combines both offensive and defensive tools of economic statecraft. Can you describe this transition and Japan's role within Japan?

Kazuto Suzuki

Well, initially Japan has been interested in the concept of economic security, largely because we have been under pressure from China with regard to the export of rare earth minerals, various critical minerals, and also because Japan has been involved in a lot of supply chain network with China.

But because of the intensive confrontation between the United States and China, especially after the first Trump administration, I think the economic relationship, especially in China using the economy as a weapon, and imposing various mechanisms such as export control on critical minerals and also controlling much harder in the Chinese domestic market.

So in that regard, Japan had to take certain actions to improve the resilience of the Japanese industry and Japanese economic relationship with China. And therefore, we launched the concept of economic security. In 2022, Japan has established a law called the Economic Security Promotion Act, or ESPA, which targeted mainly improvement of the resilience of the supply chain, and also protecting the critical infrastructure, including the 5G network. After the establishment of ESPA, Japan, of course, took various measures to improve its economic resilience.

But we gradually understand that the world is getting much complicated, including the tariff policy by the second Trump administration. So, we are now thinking of using the Japanese economic capabilities, especially focusing on the indispensability of the Japanese products in the global market, especially in terms of material, machine tools, or the manufacturing equipment. So these are the strengths of Japanese industry and Japan is indispensable in the upper stage of the production cycle. And we think that having this sort of strength in economic statecraft or economic indispensability in the global market we would be able to take advantage of this as the tools to express ourselves in the global supply chain.

But unlike China, Japan has much less or little leverage against the global market. And we do need to maintain the free trade and free exchange of goods, in order to survive, because obviously Japan is a resource poor country. We depend heavily on the international trade. So we think that it is important to use this economic statecraft or economic indispensability in the global supply chain as the tools to build up the much stronger international frameworks such as CPTPP.

Perhaps some of you may not know, maybe Australian audience understands very well about the CPTPP. This was a free trade agreement after the Trump administration left the TPP negotiation. The TPP was originally started with the 12 countries, but when the first Trump administration came into power, Mr. Trump decided to leave the TPP, and the TPP was on the verge of collapse. But Mr. Abe, Prime Minister then, he took initiative to restore the TPP negotiation and reframed the TPP to the CPTPP. So that was one of the examples that Japan took leadership in maintaining the free flow of global trading goods and to make sure that we will be engaged in the free trade.

I think this is getting more and more important under the second Trump administration, where the tendency of protectionism is much stronger. And I think Mr. Trump's economic policy against US allies is now being very severe, and really hit on the capabilities of the economic activities of both Japan and Australia. I think it is in a sense the reason why Japan is using the economic statecraft not in an aggressive way, but for the cooperative way, is probably the reflection of the change of the international economic system.

Jersey Lee

Yeah, so we will get to the longer-term challenge posed by China later on. Right now, as you mentioned, Japan has this current conflict in the economic realm and the trade realm with the US. Many had thought that Japan might be the first country to sign a trade deal with the US, including many in the current US administration. So first of all, why do you think that did not materialize? And given that China's had a preliminary deal with the US, that also came as quite a surprise to the world in terms of how much tariff reduction China received, particularly as it came on the heels of a notably less significant deal with the UK. So how do you think this was received in Japan? And do you think that all of this makes a deal with the US more or less likely?

Kazuto Suzuki

Well first of all, I think being a first does not necessarily mean a good thing. I think the reason why the UK was the first to make a deal is because the UK does not have the trade surpluses against the United States. In other words, from a US point of view, it's not a trade deficit country. So it's easier to use the tariff as a leverage to negotiate with the UK; and even when there is no trade deficit, the US still imposed a baseline 10% tariff against UK. The 10% of tariff is still a very large scale tariff and UK will face a very difficult moment for exporting its goods to the United States.

But in terms of the automobile tariff, which is 27.5%, UK has the quota for the low tariff, which is 10%, for 100,000 vehicles per year. But UK is exporting almost 100,000 vehicles, which is okay for UK. The problem is that Japan is exporting 10 times more than the UK. So the conditions are quite different. And tariff negotiation with the United States and Japan is more complicated than the UK.

The tariff agreement with China was basically, it is just an adjustment of the excessive escalation. So it was an escalation control mechanism rather than the negotiation. Basically, there's no deal with China. It is just simply bringing down these very excessive tariff level, like 145% to the 30%. If there is no agreement in the 90 days, then it will come back to the 54% (note: initial rate after “Liberation Day”). These are basically the beginning of the trade negotiation. It's not the conclusion of any tariff negotiation. Apart from that, there's no agreement.

Fiji is another one, but Fiji is a very small economy and it's easy to deal. So I think Japan needs to take more time to negotiate with the United States because we are still far apart of our demand and the U.S. demand. And there's no reason that we accelerate the negotiation, because time is on our side. Even if it passed the July 9th, which is the end of the 90 days postponement of the so-called reciprocal tariff, even after the July 9th, probably it is the United States which face the more difficult situation. So I think the United States will have more incentives to conclude the negotiation. So in that regard, I think we can make the deal in a stronger position. So I think taking more time for negotiation is not a bad thing.

And after all, the negotiation is to make an agreement which is acceptable for both countries. We cannot accept such high tariff on automobile, which is the bread and butter of Japanese economy. And there is no reason that we need to haste for the negotiation.

Richard Gray

And so to transition on from this, while it's important to coordinate on economic security and geoeconomic challenges between allies, it's also somewhat important for there to be a positive agenda of having reliable and continual investment relationships. And so this is where it's sort of the continual derailing of the Nippon steel acquisition of US Steel is in many ways very confusing. So on one end, Japan is an ally of the United States, but the Biden administration commented that the purchase was a national security concern. On more of the logistical and corporate specific challenges, Nippon Steel had cutting edge technology that would boost US steel manufacturing. And what's more, the union's preferred purchaser, Cleveland Cliffs, had recently laid off 950 workers in Illinois and Pennsylvania. And so there was going to be some downsizing in staffing regardless of who the purchaser would be.

So with all of this in mind, a question of the US as a reliable place to invest in and to receive investment from, I think there's some level of ambiguity, which is not helpful to U.S.-Japan relations at large. And at this moment, President Trump has indicated his support of the acquisition, and it looks like it will go through. But there are many questions that still remain, including but not limited to his claim that the acquisition will lead to 70,000 new jobs. I don't know if Nippon Steel knows where that number exactly came from. In your view, what are some of the lessons that the Japanese government and Japanese companies have drawn from this saga?

Kazuto Suzuki

Well, the first lesson is don't propose the acquisition of the national interest of the country during the election time. The second is that steel and Aluminium has been a major U.S. interest for many, many years, ever since 1970s. And I think this is the hardest sector to