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The Underappreciated Power

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In an era of renewed great-power competition that Washington has framed as an all-out, zero-sum battle between “the free world” and a menacing China, East Asia’s other great power, Japan, has gotten short shrift. Japan does not aspire to superpower status, and its limitations are well known: demographic decline, a deflationary economy, and self-imposed restrictions on the use of force abroad. But it would be a mistake to write off Japan as a has-been. It boasts a resilient democracy and a successful track record of adjusting to economic globalization. For decades, Japan has been a leader in infrastructure finance in developing countries. And it has acquired sterling credentials as a leader on free trade. When it comes to the use of economic engagement as a diplomatic tool, Japan—not the United States—is China’s peer competitor.

Today, Japan’s leaders are facing a number of tests. Can they safeguard public health, recover from the worst recession of the postwar era, and remain steadfast in defending a rules-based order? Among Japanese citizens, concern is growing that their country depends too much on China for its prosperity and too much on the United States for its security. The sudden resignation of Prime Minister Shinzo Abe in September has introduced new worries that stable domestic leadership and a proactive foreign policy may come to an end. In the whirlwind of today’s geopolitical rivalries and the disruption caused by the COVID-19 pandemic, it might be tempting to yet again dismiss Japan’s potential. But the country’s strategic choices are by no means foreordained, and they will affect not only its own future but also the course of the raging great-power competition now playing out between China and the United States.

Recent calls for a coalition of democracies that can rise to the challenge posed by China run into an immediate obstacle: all is not well in the democracies of the West, which are witnessing a loss of faith in globalization and the growing appeal of populist leaders. The United States stands out as the most poignant case of hobbled international leadership. And its populist experiment has gone awry; the Trump era has shown that illiberalism and protectionism aggravate rather than solve domestic problems and make it harder to counter China.

In contrast, Japan’s political waters appear to be much calmer. The country’s relatively successful adjustment to globalization and its domestic stability have positioned it well for this moment. Over the past 30 years, Japan has weathered the two aspects of globalization that have proved to be the most destabilizing elsewhere: the offshoring of manufacturing and economic integration with China. In the mid-1980s, the sharp appreciation of the yen triggered a sustained wave of Japanese foreign direct investment in East Asia and across the world, with Japanese companies forging complex supply chains. Around half of all Japanese transportation equipment is now manufactured outside Japan, as are about 30 percent of all Japanese consumer electronics and general machinery. Japanese investment helped China become the world’s factory and a top trading partner for Asian countries. Indeed, China plays a larger role in Japanese trade than it does in U.S. trade: in 2019, around 24 percent of Japan’s imports came from China, and around 19 percent of its exports went there, whereas China accounted for only around 18 percent of U.S. imports and received around seven percent of U.S. exports.

Outsourcing and the loss of factory jobs attributed to Chinese imports have become political minefields in the United States. But the Japanese public has shown little buyer’s remorse for economic globalization. On the contrary, in a 2018 survey, the political scientists Adam Liff and Kenneth McElwain found strong support for free trade among Japanese respondents, who saw it as contributing to Japan’s economy, fostering post–Cold War peace and stability, and improving their daily lives.

One reason is that trade with China has had relatively benign effects on the Japanese labor market. The economist Mina Taniguchi has found job creation, not job destruction, in the regions of Japan most involved in the supply chains that shape the country’s trade with China. Another reason is that Japanese companies face steep legal hurdles to firing redundant workers, and so mass layoffs have been rare in Japan. What is more, employers are increasingly competing for new hires because, with an aging population, the supply of workers has decreased. In the past few years, Japan’s unemployment rate has hovered around 2.4 percent, and even at times of profound economic dislocation, unemployment spikes have been modest: up to around five percent in the aftermath of the 2008 financial crisis and up to 2.8 percent six months into the COVID-19 pandemic.

Make no mistake, corporate Japan’s supposed solution to rigid labor markets—hiring nonregular employees, who lack job security and career opportunities—is a major driver of rising income inequality. And the Japanese public is frustrated by the inability of its political class to rekindle growth and address socioeconomic divides. Yet most Japanese citizens do not blame globalization or free trade for these troubles, and illiberalism has not found a foothold in Japan. The country is home to one of Asia’s most durable democratic systems, boasting robust electoral institutions and strong protections for civil rights. Its politics have not been convulsed by anti-immigrant parties, despite a doubling in the number of foreign workers in Japan in less than a decade, or by demagogues attacking the institutions of liberal democracy.

Disappointment with the main political........

© Foreign Affairs

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