Reinventing Japan’s Economic Security
Balancing Interdependence with Strategic Technology

The Covid-19 pandemic and Russia’s aggression against Ukraine, along with escalating U.S.-China technological competition over the past decade, have transformed economic security into a concept of state power. Of particular importance are the protection and advancement of critical and emerging technologies. Global industrial restructuring is underway to see which country can produce the most advanced technologies and achieve strategic indispensability based on technical preeminence. This competition will allow the winners to shape technology standards, markets, and the security landscape.

China is contending for the central position in the geoeconomic order and seeking to establish itself as an innovation power. This goal has been bolstered in large part by forced technology transfers and intellectual property theft. As part of Made in China 2025, for instance, Beijing laid claim to a leading role in many cutting-edge technologies that were unfairly sourced from Japanese companies.

From the Japanese perspective, what is at stake is not only the autonomy but the survival of the nation. While Japan is good at honing and refining technology, it is vulnerable both as a resource-poor country and as the home to large multinationals that are heavily reliant on imports of Chinese auto parts and electrical products.[1] Economic integration with the People’s Republic of China (PRC) created beneficial interdependencies but weakened supply chains due to the PRC’s one-party state’s rejection of liberalization.[2] Japan also experienced Chinese economic coercion first-hand in 2010, when the PRC halted the export of rare earth minerals to Japan following the detention of a Chinese captain in disputed waters.

In response to these threats, Japan’s Council for the Promotion of Economic Security was convened in 2021 and identified increasing self-reliance, securing an advantage and indispensability, and maintaining and strengthening the international order as the three main economic components of Japan’s national security.[3] These recommendations were the foundations of the Economic Security Promotion Act (ESPA) as Japan became an early mover in the implementation of economic security policies.

Partly as a result of Japan’s economic security policy, China’s advantage as the “world’s factory” is now fading. But the PRC still controls chokepoints in vital technology supply chains, so Japan cannot wholly disengage even if it wanted to. Therefore, rather than a blanket strategy of economic decoupling, Tokyo favors the careful identification and protection of strategic sectors and technologies. This posture emulates Washington’s “small yard and high fence” approach, but it is less politically driven due to the extent of Sino-Japanese economic integration informing Tokyo’s cautious approach to regional diplomacy. As a result, Japan’s economic security exhibits important differences in both concept and policy and comes with unique trade-offs.[4]

This commentary examines Japan’s approach to economic security, the issues driving decision-making around related policies, and the challenges stemming from the lack of an agreed-on international definition of economic security. It then looks at the country’s domestic debate about economic security and provides a series of policy options that Tokyo could pursue to strengthen its preferred approach.

Selective Interventionism

Economic security is far more than just a buzzword in Japan, and defining the term is not merely semantics because it has political and legal consequences. Given the lack of consensus globally about what economic security entails, national strategies and aims vary.[5] This uncertainty hinders the ability of like-minded countries to effectively coordinate actions to achieve mutual security outcomes. Interpretations are further complicated by disparities in focus between finance and security principles, and silos can produce irreconcilable differences. As such, examining the rationale behind Japan’s economic security policies should aid in building a future consensus.

Economic security in the conventional sense is concerned with personal welfare such as stable employment and meeting basic needs.[6] Japan’s previous concept of economic security was focused not only on protecting the welfare of the country but also on securing natural resources, therein expanding the concept to include broader societal safeguards.[7] The re-emergence of economic security in policy lexicon has taken on an even broader meaning by encompassing the multidimensional objectives of national security. However, because the types of trade-offs that are appropriate to economics are less relevant in the physical security context, the boundaries of policy discourse could be somewhat nebulous.

Given the pressing need to equate economics with national security to address existential threats, Japan has emphasized the links between economy and security. Article 2 of the ESPA defines economic security as simply “ensuring security through integrated implementation of economic measures,” thereby permitting a wide scope for policy creation. This definition prioritizes deterrence (defense) as a more effective tool than punishment (offense) and promotes innovation as being essential for Japan to continue to punch above its weight.[8] Yet if the pursuit of economic security results in mission creep and excessive interventionism, it could achieve the opposite result and harm national security. Thus, the essential challenge for Japanese policymakers has been to strike a balance between “economic logic” (seeking economic efficiencies based on market principles) and “political logic” (seeking the political value of security distinct from economic efficiencies) from the perspective of national interest.[9] This translates into an ethos of seeking to maximize trade while minimizing economic coercion and threats from the proliferation of dual-use technology as part of national security.

The above calculus has resulted in a notably quick policy change taking place in Tokyo over the past few years, culminating in an all-of-government effort to systematically create an economic security toolkit fit for Japan’s purposes. The goals highlighted in the ESPA are the four pillars of (1) the stable supply of specified critical products, (2) the stable provision of specified essential infrastructure services, (3) support for the development of specified critical technologies, and (4) nondisclosure of patent applications. Therefore, maintaining an edge in dual-use technologies and proactively limiting other countries’ access are paramount, while acknowledging that this cannot occur in isolation, nor does it guarantee strategic autonomy.[10]

Thus, for many systemic reasons, Japan’s approach to economic security seeks “friendly” partners in global supply chains and embraces the need to pool resources in advanced manufacturing and international standards-setting. The reality that innovation is a function of market forces and collaboration is another reason to strengthen partner networks. Japan, the United States, and a growing number of their partners consider minilateralism a practical framework relying on like-minded countries to participate in knowledge coalitions alongside friendshoring manufacturing where possible. Yet this is still primarily a Japanese solution, which might not work for every country due to Japan’s economy being more intertwined and vulnerable than others. That is, a one-size-fits-all approach could be unsuited to today’s geoeconomic environment.[11]

The Securitization of Interdependence

Every country has a different appetite for engagement and hedging, often governed by trade interests and spending power. Japan’s economic relations draw it close to China, while security tensions force them apart. The nature of this relationship creates challenges around Japan’s competing economic and security interests. Japan’s economic security strategy must therefore view prosperity and security as complementary instead of as mutually exclusive components to be sacrificed to the other.

In terms of pure economics, Sino-Japanese relations have generated interdependencies that, if unwound, would seriously damage both countries. China as a world supplier stands out with a dominant position in 220 strategic sectors, compared with only 15 for Japan, and accounts for around 90% of the refining capacity for rare earth minerals.[12] It is not in Beijing’s interest to completely disconnect from liberal export markets, as the PRC benefits from access to the foreign capital and technology needed to overcome tech asymmetries. Likewise, as a leader in many regional multilateral agreements, Japan champions trade, investment, and connectivity. No less important is the fact that open and fair competition drives innovation. Subsidizing national industries is anathema to the free market and diminishes creativity. Hence, Sino-Japanese economic cooperation has been undeniably beneficial for both nations and the global economy, and autarky is not a desirable option.

Given its history with the PRC, Japan is very familiar with the risks associated with forced technology transfers and military-civil fusion policies. These actions not only are a security problem but also pose a major threat to free trade. Chinese companies sell products to developing countries using technology obtained through unfair means, such as high-speed rail and networking equipment. Given that Japanese multinational offshoring has come with significant costs, ring-fencing certain dual-use technologies that could determine future military and trade advantages is a logical alternative. Targeted support for industry can succeed, particularly by nurturing entrepreneurship. Industrial policy is one of Japan’s strengths, so the country does have the knowhow to leverage controls on specific sectors in the pursuit of prudent growth.

Japan has chosen to explicitly connect economic competitiveness to national security. For better or worse, implementing this policy shift raises further questions around rationalization, proportionality, and the law of unintended consequences. In particular, linking economic activities with national security could exaggerate risks and restrict benign commercial activities,[13] so any constraints must be well justified. For example, last-generation technology can still achieve much of what the advanced version can, and the PRC’s manufacturing capacity means that it is able to keep the market price of technology relatively low. Competition among major technological innovation powers, therefore, risks isolating developing countries by pricing them out and pushing them to integrate more closely with China,[14] as was seen with 5G. Consequently, framed by global supply chains in high-tech manufacturing, Japan’s economic security policy centers on accounting for geopolitical realities while seeking to avoid overly protectionist policies.

New Tech, New Risks

Japanese economic security policy looks to deliver a comprehensive package of cross-departmental mandates, enterprise management tools, and foreign cooperation strategies aimed at winning technology competition. This increasingly complex target demands effective implementation and continuous monitoring to identify and ameliorate any policy gaps. In regard to producing next-generation critical and emerging technologies, this considerable task includes the goals of de-risking, sharing knowledge, observing market forces, and promoting international rulemaking.

De-risking involves the complex task of identifying supply chain weaknesses. Because of the complexity of modern supply chains, establishing the provenance of individual components and suppliers is a monumental task. It also entails continuous review of recipients of technology transfers to mitigate espionage and illicit acquisition. While the United States has implemented strict export controls aimed at limiting Chinese firms’ access to high-performance chips, there are still ways for companies on export control lists to acquire some advanced chips, such as through third countries, although this is becoming increasingly difficult.[15] De-risking, therefore, requires well-funded mechanisms that facilitate the collection of economic intelligence to identify vulnerabilities and monitor the efficacy of economic security instruments.

Given the increasing complexity of critical and emerging technologies, another essential task is fostering international knowledge networks and pooling resources. This will rightly lead to new technology consortiums to build resilience and increase collaboration to achieve breakthroughs. Knowledge sharing to also improve policy coordination thus becomes functionally critical. Japan, for example, has proposed a security-clearance system plus a nondisclosure patent system to ensure that proper access is granted to sensitive information. Yet because most data is held by private entities, greater public-private collaboration will be required.[16] Additional insight into foreign technology capabilities would help fine-tune economic security controls. As such, economic security policy should pursue an expansive knowledge-sharing agenda.

Possibly the most important element in advancing critical and emerging technologies is adhering to free-market principles. Achieving mass market appeal requires an entrepreneurial community that can read demand signals backed by robust funding streams. The U.S.-China trade war demonstrates the challenges arising from differing economic philosophies and the effectiveness of cutting-edge innovation versus utilitarian iteration. While Japan is an innovator, it could employ its human capital more effectively by nurturing new research to unlock its potential. As it seeks to update and modernize its technology development policies, Japan faces the twin challenges of cultivating a renewed sense of corporate risk-taking while reducing resistance to developing dual-use critical and emerging technologies. Historically, science, technology, and innovation policies were developed through a “seeds-centered” approach, while defense technologies have been developed via a “needs-centered” approach. Thus, civil and military technology research were separate entities due to Japan’s pacifism. To ameliorate this, the government is trying to develop a more integrated approach to research and development via its national security strategy by promoting the funding of seeds and needs to support the development of “multiuse” technologies.[17]

Another fundamental hurdle is the lack of an international body to enforce economic security rules. The World Trade Organization is incapable of adjudicating matters of national security, but transparent international rules stipulating under which conditions certain products or industries may be subject to controls are nonetheless required. For Japan, this means looking toward minilateral groupings such as the G-7, Quad, Regional Comprehensive Economic Partnership, or Comprehensive and Progressive Agreement for Trans-Pacific Partnership. If Japan’s approach to economic security proves to be effective, it could then serve as a basis for international rules and help avoid duplicate or disparate regimes. Above all, Tokyo cannot afford global trade becoming a zero-sum game.

A Technology Alliance

As dual-use technologies proliferate, maintaining a technological edge has become a top national security priority for all countries. Perhaps the greatest lesson from Japan’s experience is the importance of sustaining the prominence of economic security across the government to arrive at approaches that address unique but shared policy conundrums. Critical and emerging technologies continue to alter the geopolitical landscape, and policymakers, economists, investors, technologists, and security experts have no choice but to adapt. Finding the right balance is an open-ended challenge replete with trade-offs. In particular, innovation entails intricate partnerships working in unison, so economic openness and friendshoring are the best sources of security.

Meanwhile, unilateral restrictions are likely to worsen disputes, and autarky is not an effective solution. Therefore, countries must prioritize the formation of a technology alliance focusing on affordable critical and emerging technologies that create tangible social benefits. In essence, Japan’s economic security goals of achieving strategic autonomy and strategic indispensability are obtainable as long as policymakers are consistently working to identify and strengthen beneficial interdependencies.

Daisuke Kawai is a Project Assistant Professor and the Deputy Director of the Economic Security Research Program in the Research Center for Advanced Science and Technology at the University of Tokyo.

Endnotes

[1] JUSDA, “Challenges Facing Japan’s Traditional Supply Chains,” October 16, 2024, https://www.jusdaglobal.com/en/article/challenges-japan-traditional-supply-chains-solutions.

[2] Max J. Zenglein and Gunter Jacob, “The Party Knows Best: Aligning Economic Actors with China’s Strategic Goal,” MERICS Report, October 2023, https://merics.org/sites/default/files/2023-10/MERICS%20Report%20The%20party%20knows%20best-Aligning%20economic%20actors%20with%20Chinas%20strategic%20goals2_0.pdf.

[3] Ministry of Economy, Trade and Industry (Japan), Japan’s National Security Strategy (Tokyo, 2023), section 2, https://www.meti.go.jp/english/report/data/wp2023/pdf/2-1-2.pdf.

[4] Georgia Edmonstone, “Economic Security Policies Compared: The United States, Its Allies and Partners,” United States Studies Centre, September 23, 2024, https://www.ussc.edu.au/economic-security-policies-compared-the-united-states-its-allies-and-partners.

[5] See, for example, Edmonstone “Economic Security Policies Compared.”

[6] “Definitions: What We Mean When We Say ‘Economic Security,’” International Labour Organisation, https://webapps.ilo.org/public/english/protection/ses/download/docs/definition.pdf.

[7] Toshiya Takahashi, “Japan’s Opaque Economic Security Policy Agenda,” Australian National University, November 29, 2024, https://ajrc.crawford.anu.edu.au/department-news/19756/japans-opaque-economic-security-policy-agenda.

[8] Amy Searight, “Expanding the U.S.-Japan Economic Security Partnership: Engaging Allies and Partners,” Atlantic Council, Issue Brief, September 2024, https://www.atlanticcouncil.org/wp-content/uploads/2024/09/JETRO-Atlantic-Council-Issue-Brief-on-Expanding-the-US-Japan-Economic-Security-Partnership.pdf.

[9] Shigeaki Shiraishi, “Japan’s Economic Security Policy,” Konrad Adenauer Stiftung, 2024, https://www.kas.de/en/web/japan/single-title/-/content/japan-s-economic-security-policy-2.

[10] Ibid.

[11] Emily Benson, Catharine Mouradian, and Andrea Leonard Palazzi, “Toward a U.S. Economic Security Strategy: Twenty-First-Century Guidance for Domestic and International Policymaking,” Center for Strategic and International Studies (CSIS), July 2024, https://csis-website-prod.s3.amazonaws.com/s3fs-public/2024-07/240709_Benson_Economic_Security.pdf.

[12] François Chimits et al., “European Economic Security: Current Practices and Further Development,” European Parliament, April 2024, https://www.europarl.europa.eu/RegData/etudes/IDAN/2024/754449/EXPO_IDA(2024)754449_EN.pdf.

[13] Matthew P. Goodman, “Getting Economic Security Right,” Council on Foreign Relations, September 4, 2024, https://www.cfr.org/article/getting-economic-security-right.

[14] Searight, “Expanding the U.S.-Japan Economic Security Partnership.”

[15] Gregory C. Allen, “Understanding the Biden Administration’s Updated Export Controls,” CSIS, December 2024, https://www.csis.org/analysis/understanding-biden-administrations-updated-export-controls.

[16] Kazuto Suzuki, “The Shift from Economic Security to Geoeconomics,” Institute of Geoeconomics, April 17, 2024, https://instituteofgeoeconomics.org/en/research/2024041757188.

[17] Jun Kazeki, “Economic Security and Emerging Technology: Japan’s Perspective for Pursuing a Technology Alliance,” Sasakawa Peace Foundation USA, US-Japan NEXT Alliance Initiative, December 2022, https://spfusa.org/wp-content/uploads/2022/12/Mr.-Jun-Kazeki.pdf.