US and Japan move toward founding of 'economic NATO' to counter China

Japan and the United States plan to pool their economic clout to prevent China from converting its enormous resources into strategic victories.

Secretary of State Antony Blinken, Commerce Secretary Gina Raimondo, and their Japanese counterparts stopped short of invoking the “economic NATO” concept that some U.S. lawmakers and allies have proposed. Still, they agreed that “the coercive and retaliatory economic practices of the People’s Republic of China,” as Blinken put it, warrant a concerted and preparatory response.

“For Japan and [the] U.S. to effectively respond to the unfair and opaque use of economic influence, it is necessary to think about diplomacy, security, and economy as a unit,” Japan’s foreign minister, Yoshimasa Hayashi, told reporters at the State Department. “In particular, since the United States and Japan are No. 1 and 2 democratic economies in the world, it would be beneficial for us to discuss strategically about the policies to be implemented in such [a] situation.”

The meeting Friday fell under the anodyne heading of the the U.S.-Japan Economic Policy Consultative Committee, a new format for the quartet of diplomatic and economic policymakers to coordinate their efforts to “make our economies more competitive and resilient.” Hayashi emphasized that they “are not pursuing protectionism or bloc economy,” but the joint statement released after the gathering made clear that the initiative is at least in part intended as a means to compete for global influence.

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“The Ministers shared the view that the United States and Japan, as the world’s two largest democratic economies, can demonstrate that democracies provide the best model for prosperity, stability, and security,” the joint statement said. “The Ministers expressed grave concern about, and opposition to, harmful uses of economic influence, including economic coercion as well as unfair and opaque lending practices, in ways that threaten the legitimate interests of sovereign nations, as well as those of individuals and industries.”

Those concerns are clear criticisms of China — and not merely for pioneering an overseas lending model that Western officials regard as a “predatory” initiative to gain infrastructure in key locations around the world. China imposed severe economic penalties on Australia in retaliation for Canberra’s demand for a credible investigation into the origins of the coronavirus pandemic. And Beijing, more recently, tried to force major German companies that invest in China to cut their ties with Lithuanian companies as a way of punishing Lithuania for allowing Taiwan, which the mainland Chinese regime regards as its sovereign territory, to open a new unofficial embassy in Vilnius.

“The coercive and retaliatory economic practices of the People’s Republic of China force countries into choices that compromise their security, their intellectual property, their economic independence,” Blinken said. “These and other challenges call for our two countries to work together even more closely on economic matters.”

Officials from both countries hailed the passage through Congress of a law that devotes $52 billion to the manufacturing of semiconductors in the United States as a watershed moment in security and economic affairs. “It’s epoch-making,” Japan’s economy minister, Koichi Hagiuda, told reporters.

Raimondo concurred, adding that the law would allow for “rebuilding the entire semiconductor supply chain in America” and set the stage for more advanced joint research. “It’s impossible to overstate the significance of Congress’s action yesterday and the opportunity for collaboration that that opens for the United States and Japan to strengthen the semiconductor supply chain,” she said.

China’s recent targeting of Lithuania has galvanized Western interest in coordinating preventative measures, as the showdown laid bare how Beijing will use even economic ties between allies — Germany and Lithuania are both members of NATO and the European Union — into a weapon. Senate Foreign Relations Chairman Bob Menendez (D-NJ) asked a Blinken lieutenant this week about “the creation of an economic version of the NATO Article 5,” identifying that idea as a potential bulwark against the pressure applied to Lithuania.

“We found out that we had some tools that, in some ways, we had not thought about,” Jose Fernandez, the State Department undersecretary for economic growth, replied during the committee hearing on Wednesday. “[The Export-Import] Bank doubled the export credits that China had given to Lithuania, to give one example. I know it’s been discussed, the Article 5 idea. It’s an interesting idea. I think we’re developing a playbook now, and it’s something that we will continue to consider going forward.”

British Foreign Secretary Liz Truss endorsed the idea of “the G-7 acting as an economic NATO.” The G-7 is a bloc of the world’s seven largest industrialized democracies. Japan is the only nation in the G-7 that is not also a member of NATO.

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“The two-plus-two will not only be confined to Japan-U.S. bilateral [relations] but will be a foundation which will bring peace and prosperity widely in the Indo-Pacific region,” Hagiuda told reporters. “This is, as it were, [a] compass for realizing free and open Indo-Pacific. This is our belief.”

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