Introduction
From the COVID-19 pandemic to the Russian invasion of Ukraine, multiple crises in recent years have disrupted supply chains. Incidents of economic coercion and effects of sanctions upset trade and investment. There is an acute sense that concerns over economic security are now trumping interests of economic efficiency and mutual benefits arising from economic integration. In the face of these challenges, economic governance institutions such as the World Trade Organization (WTO) and the Bretton Woods Institutions seem to have lost their ability to ensure rules-based economic order. Concomitantly, there is concern that the rise of economic security is serving as a new method of trade and investment protectionism and that the abuse of the security rationale is being used to weaponize economic interdependence. These developments can lead to trade and investment contraction which would have devastating effects on the global economy.
Despite these disruptions of recent years, members of two mega-free trade agreements (FTAs) in the Indo-Pacific, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), were able to conclude negotiations, and these agreements came into effect in December 2018 and January 2022 respectively. CPTPP, originally with 11 Pacific members with the UK joining in July 2023, exemplifies high-standard rules, from labor to environmental protection to eCommerce and intellectual property rights protection. RCEP with 15 Western Pacific members including Japan, China, and South Korea (their first FTA) is the largest FTA in the world covering 30 percent of global trade and important production networks in Asia. Despite the United States retreating from the global FTA scene due to its domestic politics, both Japan and China continue to expand their respective FTA networks into 2024.
In the face of the rise of economic security concerns, do these regional integration efforts in trade and investment still serve as answers for economic integration and mutually beneficial business exchanges? What remains important and what has changed?
Rise of Economic Security
There is no clear or shared definition of economic security, but we have seen a sign of convergence in the 2023 G7 Hiroshima summit. The leaders emphasized the importance of identifying economic security in the form of “derisking” and not “decoupling.” In addition, the G7 Statement of Economic Resilience and Economic Security from this summit states that “[w]e affirm that our cooperation to strengthen economic resilience and economic security will be rooted in maintaining and improving a well-functioning international rules-based system (Note 1).”
Yet, different governments have been taking contrasting approaches to addressing economic security thus far. The Biden Administration tends to define economic security in the form of mitigating geoeconomic risks and bolstering America’s technological and economic competitiveness. A significant portion of the current U.S. economic security concern is summed up by the national security implications of technology competition with China and domestic political concerns as a result of diverted production and supply chains resilience. With a series of speeches made by the National Security Advisor, Jake Sullivan, the notion of a “small yard, high fence” is commonly used to describe the U.S. approach to economic relations with China, imposing stringent controls (i.e. decoupling) on a small number of high-tech sectors with security implications, while maintaining the free trade norm in the rest of the economy. In order to implement this approach, emerging and foundational technologies are now placed under the mandatory review process, which is outlined by the export control legislation passed in 2018 (Note 2).
The Japanese government has beefed up its economic security for the last dozen or so years starting with “China plus one” strategy to diversity supply and production away from overdependence on China. This shift came about in the face of China’s 2010 rare earths embargo against Japan. The Japanese government has developed multiple institutions for the purpose. Within the National Security Bureau established in 2013 to lead the national security related policy-making function within the Cabinet Secretariat, a new “Economic Section” was created in April 2020 to address issues of economic security. The prefectural governments and other ministries followed by setting up new economic security divisions in the Ministry of Economy, Trade and Industry (METI), the Ministry of Foreign Affairs (MOFA) and the ministry of Defense (MOD) in the 2020s (Note 3), Finally, Kishida administration appointing the first Economic Security Minister in October 2021. In the National Security Strategy announced in December 2022 defines economic security policies are methods of “achieving autonomous economic prosperity.” Furthermore, the Japanese lawmakers passed the Economic Security Promotion Act in May 2022, which includes four key areas; supply chain resilience and diversification, critical infrastructure, promotion of technological development, and protection of intellectual property (Note 4).
Both the offensive approach (strategic indispensability) of winning the high-tech race against China, and the defensive approach (strategic autonomy) of protecting economic resilience are important to both the United States and Japan. Nonetheless, U.S. economic security approach has been colored by security considerations including technological supremacy with the flavor of domestic protectionism centered around competition with China. Meanwhile, Japanese economic security focuses much more on the defensive approach of bolstering the country’s “strategic autonomy” from any threats that come its way (Note 5).
Approaches to Achieving Collective Resilience
Despite the differences in conceptualization and approaches, the common basis of the economic security approaches between the United States and Japan is their focus on supply chain resilience and reliance on “like-minded” countries to create a protective coalition and on friend-shoring or alliance-shoring of their production (Note 6).
This method of achieving “collective resilience” is advocated by some (Note 7). Collaborating with each other to protect the fair and undisrupted function of the global economy is vital. It is important, nonetheless, that we distinguish among different forms of collective resilience in achieving this goal; i.e. the difference between a dangerous approach and a smart one. The dangerous approach, on the one hand, is to invoke the sense of “collective (economic) security” where a group of states band together to deter and counter an adversary’s aggression, as seen in the definition of collective resilience used by some parties: “promises a multilateral response in the trade space to the prospect of economic bullying by the Chinese government (Note 8).” It is true (and usually implicit) that the Chinese government has frequently used the tactics of economic coercion from the 2010 export ban of rare earth minerals to Japan to the massive tariff against Australian agricultural and other exports to China in 2020. Cooperating among “like-minded” nations to stand up against such abuses is important, but other cases are not so simple. For instance, the U.S. government sought to create an “alliance” in semi-conductor production among its producing nations and pressed three Asian economies, Japan, Taiwan and South Korea, to align with the United States and cut China off. This placed these Asian economies in a very difficult position (Note 9). The China market represents important business for them, and despite U.S. pressure, it is difficult to undermine these business interests under a simple national security logic.
On the other hand, the use of already existing regional integration schemes can serve as smart paths to collective resilience. Governments have for many decades worked tirelessly to establish multiple arrangements including FTAs and other measures to support the rules-based economic order and norms of fair exchange as seen in APEC activities, for example (Note 10). The recent U.S. efforts of the Indo-Pacific Economic Framework for Prosperity could also be an illustration of such an endeavor. Although most of these arrangements start with like-minded countries with specific membership, many have accession processes to expand membership as we see in the case of CPTPP. In addition, these arrangements can serve as forums where small and medium-sized powers could be empowered to save the rules-based order in the face of a leadership vacuum.
A Way Forward for Regionalism
Many cast doubts on the future of regionalism and economic connectivity, especially in relation to the Asia Pacific, with tensions between the United States and China intensifying in the last decade (Note 11). On the contrary, I argue that regionalism, regional institutions and reginal integration have become even more vital in the 2020s. Regional arrangements could be a softer and more constructive way of fostering the rules-based order to achieve collective resilience, and the rules that the regions establish would reflect that region’s fundamental interests. It is imperative that we continue to support the efforts towards regional integration as a foundation to achieve collective resilience in the era of economic security.
