Rise and Fall of Japan

Rise and Fall of Japan
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Under the outlook of the historical relationship with the European Union and Germany

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Introduction

Japan has traditionally been depicted by the literature as a successful, vigorous and creative nation able to operate deep revolutions as soon as new threats emerged. Since a long time, Japan appeals to the historical and the economic research fields, as attested by an abundant literature avidly engaged in bringing comprehension of Japan’s rapid and successful changes. This paper aims to cover the two long-term socio-political transformation processes, whose role in the Japanese emergence as global power is often underlined; namely the 19th century industrialization – occurred during the imperialistic Western threat – and the construction of Japan as a global economic superstate (Bullock, 2000: 145), paradoxically after its destruction during the Pacific War. If we adopted a “naturalizing” vision of the country, we would probably contemplate Japan for having shaped success from adversity and attribute it to a supposed national behaviour or idiosyncrasy, which Toynbee’s “law of challenge and response” describes quite accurately (Toynbee, 1987: 570).

By means of an intellectual process of historicization, we aspire to understand contemporary Japan’s economic foreign policy, as well as the deriving goals, means and priorities. The author’s intention in this paper is to trace the history of the domestic dynamisms that shaped Modern Japan’s foreign policy, along with the resulting end of Japan’s previous international isolation, newly affirmed at the global stage. On this purpose, we will identify the Meiji-Era set of industrial reconfigurations and foreign policies, which we believe to partly have been reasoned by a national-convicted research of raw resources and political power. Under the tied associativity between political and economical interests, Japan institutionalized a model of aggressive mercantilism, whose resilience lead the developed countries to fight  back with harsh trade conflicts. Therefore, we will focus on the genesis of the trade relations between Japan and the European countries, in order to enlighten the Japanese form of mercantilism and neo-mercantilism, pursued respectively during the Meiji-Era and after the 1970s.

The assumption that will lead our reflexion is to argue that European developed markets have a particular significance for Japan, with regards to the development of an economic leadership over Asia. The role played by Japan in Asia as economic leader candidate, that lead to the establishment of the “flying-geese pattern”, will be integrated to our study in order to underline the Japanese necessity of increasing its exports to Europe, as a means to achieve its regional ambitions. The negotiations to conclude a Free Trade Agreement (FTA) between the European Union (EU) and Japan, launched in 2013, are therefore revealing to surpass strict economic dimensions. We assume in this paper that economic considerations are closely bound up with politics issues.

Subsequently, our study will depart from the statement that the Asian regional economic framework is reconfigured through the rise of China. The resulting geopolitical impact, when combined with the severe economic troubles that have affected Japan, doesn’t provide rejoicing forecasts for Japan and simultaneously induce the termination of its extroverted zenith. A special attention will be given to Japan’s main trade partner in Europe, the export superstate Germany. By means of this case study, the author aims firstly to illustrate some of the Japanese diverse interests in Europe that lead to establish bilateral relations with Germany, secondly to reveal the comparative low attractiveness of the Japanese market for foreign investment, gradually attracted by the Chinese emerging commercial hub.

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Building power by economic means

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The following chapter will review the major features hold by modern Japan during the extroversion cycle, running from 1958 and the end of the « Sakoku » introversion cycle, to the new millennium. We aim to understand the fundamental Japanese imperative, namely the quest for raw resources.

In order to bring enlightenment to the Japanese postures adopted towards its neighbouring countries, a fundamental feature of the archipelago has to be recalled. Japan’s territories historical lack of raw materials and natural resources, from the most fundamental like cereals, which prevented for long the birth of a demographic power (only 12% of the land is arable), to oil, coal, iron and rubber (Stratfor, 2012: 12) The latter’s absence had evolved in a major concern as Japan was seeking to develop its industrial capabilities. After the aperture of the Tokugawa Shogunate to foreign trade in 1853 – as a consequence of the United States gunboat diplomacy – Japan was facing a dreadful dilemma. Policy makers were divided between either conserving a stable traditional socio-political structure, nevertheless risking to face foreign interferences over the countries institutions as it happened in the Qing Empire through  trade concessions; or  monitoring deep mutations within the country’s socio-economic patterns as mean to resist to the upcoming challenges. The second available option, namely operation deep mutations, was conceptualized as a strategy to catch up with Western powers, and to counter their rising economic avidity over Japan with an equal negotiation posture, gained through military and economic means. Under the challenge of preserving the society sovereignty, Japanese decision-makers initiated – during the so-called Meiji Era – a long process of state and nation-building, which was permitted by the centralization and monopoly of the means of production and coercion. After having established the central authority of the state, in particular by neutralizing domestic centers of power – the Samurai feudal structure was dissolved in 1870 (Bullock, 2000: 151) – and creating a Western-inspired modern army (Ibid. : 151), the Meiji leadership stimulated economic development as well as deep social reconfigurations, through national ideology and education.

In the 1930s, the first trade conflict between European countries and Japan took place, in the background of a global recession resulting from the Great Depression, which was severely affecting the industrialized countries (Abe, 2015 : 33-35). As a consequence of the Japanese gold standard system’s [1] abrogation that led the yen to depreciate, exports increased and brought the country to quickly overcome the recession. Japan had a labour-intensive production – composed mainly by cotton clothes – which was sold for low prices essentially in Southeast Asian markets. After the lost of the Chinese market due to boycotts and import tariffs imposed by the Kuomintang government, the Japanese exporting firms orientated their flows of merchandises to the Dutch East Indies – actual Indonesia – and to British India. The suzerains of the territories, the Netherlands and Great Britain monarchies, criticised this unwelcome competition in their colonial backyard and engaged into the defense of their trade interests by raising tariffs on Japanese products (Abe, 2015 : 34), the most common instrument of trade resolution during this period. The conflict has not only shown the potential of clash between major powers in the region, but also the Japanese industries’ engagement in the prioritization for opening export markets in Asia, by all means necessary. At the internal level, tied relations between the zaibatsu (Dower, 1999 : 545) – the industrial and financial conglomerates – and the emerging military leaders, forming a powerful military-industrial complex, shaped the foreign policy of the country. Private economic considerations were perceived as belonging to the « national interest » field and trade was seen as an economic mean to increase the nation’s power (Macleod & Dufault & Dufour & Morin, David, 2008 : 259-261), which thus induced a mercantilist conception of the State. The Japanese leadership, galvanized by the slogan « Enrich the state, strengthen the military » (Holcombe, 2001 : 16) and impregnated by mercantilist principles, initiated the conquest – by military means when diplomacy and influence competition were unsuccessful – of Asian markets, which laid the antagonistic ground for the Second World War (Stratfor, 2012 : 12).

The archipelago of Japan is a remarkable historical example of a socio-political whole, which, regardless of resources deprivation, still succeeded in building the primary structure of an extroverted and aggressive empire. Without the loss in the Pacific War in 1945 and therefore the abortion of its project by the USA, Japan would have probably emerged as a durable leadership holder in Asia, enabled by a military navy and secured maritime routes. The latter would have constituted the streams of goods coming from Asia, that would have enriched the new empire Dai Nippon Teikoku (the “Great Empire of Japan”) (Ibid. : 19-23). Even if such suppositions are counterfactual, they provide nevertheless useful cognitive tools to interpret the future widespread of Japan in Asia. Under the American control – until 1952 – the wartime bureaucratic and economic structure of the country almost remained unchanged – this decision was motivated by stabilization purposes – which tend to induce a relative continuity between imperial and post-war Japan. In other words, we assume that the Asian ambitions of Japan survived from the 1945 defeat as a conceptual legacy.

The imperial power’s surrender prevented Japan from any future ownership of military capabilities, as stated by the article 9. of the 1947 Constitution, thus constraining the country to limited economy-orientated diplomatic instruments, such as the Official Development Assistance (ODA) policy. In times of increased raw materials needs, the absence of a military instrument stimulated Japan’s vulnerability feeling (Ibid. : 15), which has brought many Japanese prime Ministers to propose a reinterpretation of the peaceful Constitution as an attempt to reequip the country with a national army.

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Japanese Neo-mercantilism and trilateral trade conflict with Europe

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Demilitarized Japan was more likely to evolve into a stagnant, labor-intensive economy, than into an export superstate. However, the action of private and public actors among the Japanese society lead to the constitution of a neo-mercantilist shaped foreign policy, strongly antagonistic to European interests, which nominated Japan among the wealthier world nations. In this chapter, we aspire to provide a panorama of the second trade conflict’s genesis, as well as potential explanations for the conflict’s relaxation in the 90s.

Constitutionally forbidden to develop a national army, the zaibatsu’s war industries concentrated the remaining capital and know-how in the consumption goods’ production. Companies such as Toyota, Sony Corporation, Nissan, Honda, Canon and Nikon – among others – grew by converting their military-orientated production into “peacetime demanded goods” (Dower, 1999 : 533-534). Through the promotion of advanced technology, Japan saw its production sector shift from a labour-intensive to a high-value-added manufacture (Ibid. : 537). The reconstruction of the country owes plausibly its rapidity from the complex associativity between an authoritarian bureaucracy, a conglomerate-dominated economy [2] and tied relations between the finance and the industry. Monitored by mercantilist policies and a newly-established central economic planning institution – the powerful Ministry of International Trade and Industry (MITI) – the numerous Japanese high technological goods spilt on the Western consumer markets, which laid the second trade conflict groundwork as the latter were touched by the 1970s depression.

Before developing our chronology further, it seems appropriate to assess the Japanese perception towards the developed markets, such as the European and North American ones. These markets are labelled and targeted as consumption markets, due to their relative high propensity to consume, propensity that is allowed by high per-capita incomes and high-level demand for technological goods. Such markets have been perceived of strategic interest for Tokyo, namely because their juicy commercial opportunities represent potential high inflows for Japan. In other words, by increasing firm’s sales in developed markets and the resulting country’s trade surplus, Japan was simultaneously raising its foreign currency reserves, which could afterwards be invested in Southeast Asia under the form of FDI and ODA (Drifte, 2006 : 96). In the latter developing market, Japan benefited from the access to the same energy sources the military leadership tried to seize during the Pacific War, reaching in this way its geopolitical imperative of gaining resources’ supply. The commercial holdings Keiretsu transposed their supply chains in the Asian countries, while providing them with developmental aids and constituting “strong bureaucratic and personal connections” (Strafor, 2012 : 15), soon leading to the formation of an informal economic leadership in Asia, the so-called flying-geese pattern (To-hai, 2016 : 32-44). Unfortunately, the European markets were at once an opportunity and a threat for Japan’s Asian integration. Industrial sectors from the continent were willing to conquer the Japanese market for an identical purpose, i.e. high commercial opportunities. Because they were producers of competitive and substitutive goods, notably in the automotive sector, Japan raised discriminatory protection instruments against the import of European goods in order to maximize its trade surplus.

Severely affected by the 1973 oil crisis, the European countries were facing a long recession. The resulting inflation burdened the exports of the already weakened European industries. The markets of the continent were submerged by Japanese manufactured products. The latter increased as the Yen relative value depreciated [3] and the European currencies appreciated. Consequently, the trade balance between the European Community and Japan was dangerously unbalanced. The immense export flow from Japan raised political concerns in the European governments, as worried by their trade deficit as annoyed by Japan’s protectionism towards European goods. The European bilateral trade deficit towards the Asian giant reached a level of political sensitiveness significant enough to be described by the European countries as the Japan problem” (Ibid. : 15). Edith Cresson, previous French European Affairs Minister, described the Japanese as « yellow ants trying to take over the world » (Ibid. : 28), which depicts some of the negative perceptions of Japan that were running in Europe. Indeed, the access to the Japanese market was restricted by a plethora of non-tariffs obstacles to industrial imports, such as certifications, regulations, inspections and technical procedures. The targeted resources were vehicles, pharmaceuticals, chemicals and gas (Abe, 2015 : 15). In other words, goods in direct competition with the crown of Japan’s industry.

Hollerman described the Japanese post-war trade approach as « the most restrictive foreign trade and foreign exchange control ever devised by a major free nation » (Leon Hollerman quoted in Dower 1999 : 546), inducing the existence of an institutionalized form of neo-mercantilism. By mercantilism, we aim to label the government “economic nationalist” attempt – through the MITI – to promote national firms in the international market as a means to build Japan’s political power. However, Japanese neo-mercantilism (Macleod & Dufault & Dufour & Morin, David, 2008 : 259-261) distinguishes itself from the older imperial mercantilist model by the means it has mobilized to reach the aforementioned politic power. In fact, Japan replaced formal trade barriers with non-tariffs obstacles, and transposed national preferences in the formulation of its bilateral FTA’s – previously a sparsely envisaged diplomatic tool – by systematically requiring the agricultural goods’ exclusion from the agreement’s fields of application. In absence of a substantial political influence, Japan was denied the bargaining power sufficient enough to remove the industrial barriers, which the new partners refused to suppress as long as the Japanese agricultural protections would remain. The agricultural preference is understandable as soon as we become aware of the agricultural lobby’s influence among the Liberal Democratic Party’s (LDP) parliamentarians, who are therefore hostile to any agricultural liberalization. However, Japan -sensitive to the comparative disadvantage of Japanese industrial companies resulting from the protectionist policies – ratified its first FTA containing agricultural concessions with Mexico in 2004, under Koizumi’s premiership.

Previously unregulated at the international level and traversed by national protectionist policies, world trade has seen its play rules progressively change under the GATT [4] legal framework. Created in 1947, this supranational institution pursued the objective of encouraging free trade among countries through the lowering of tariffs and the suppression of Discriminatory Quantitative Restrictions (QR’s), putting an end to the ancient bilateral way of resolving trade conflict. Japan, which joined the organisation in 1955, was therefore legally incited to lower its protectionist barriers. Despite the existence of constraining directives, numerous member States still easily violated GATT articles by either bypassing legal requirement or restricting their market access to foreign competitors. As a consequence of the relatively permissive world trade field of activity, European countries and Japan [5] maintained and established import-barriers in their bilateral relations – for instance, France and Italy increased drastically imports restrictions on Japanese products – while simultaneously convening the GATT arbitration body in order to solve the resulting conflict, or better said, calling the institution as an attempt to dismantle the competitor’s barriers (Abe, 2015 : 84-113). As an example to illustrate the conduct of conflict-solving, the European Community has in 1986 « requested Japan to conduct negotiations under GATT, because it violated its national treatment since the tax rate on whisky was higher than the one on shochu, a Japanese distilled liquor. Ultimately, GATT passed judgement that the Japanese tax system contravened the agreement. Japan bowed to the rules: it accepted the result, correcting the gap in tax rates » (Tsukui quoted in Abe, 2015 : 15). As seen, related parties were mired in trilateral negotiations, driven essentially by the European Commission, the GATT and the MITI on the Japanese side.

The conflict never really came to an end, but it substantially relaxed in the 1990s. The establishment of the European Union in 1993 – after the Maastricht Treaty in 1992 – can partly explain the shift from antagonism to cooperation, which rapidly progressed as the EU was built. A significant step was achieved in 1994 when European discriminatory Quantitative Restrictions (QR’s) were removed. Moreover, consequent efforts have been nurtured in order to increase the communication between the two markets, such as the launching of industrial cooperation and the creation of the “EU – Japan Centre for Industrial Cooperation”, an unprecedented level of bilateral cooperation in the European Union perspective. The conflict relaxation could be explained by the differential bargaining power’s distribution among the related parties. In fact, coalesced behind an unified market, the European countries gained a mutual platform to claim their interests, and thus benefited  from a stronger bargaining power. Meanwhile, Japan was paying the price of the “Lost Decade”. The Japanese asset bubble, consequence of the forced appreciation of the Yen during Plaza Accord (1985), leaded the country to a series of deflationary recessions and to the exports’ drop (Stratfor, 2012 : 16), which substantially reduced the “Japan problem” perception in Europe. To summarize, the amount of incentives and facilities established to encourage European imports in Japan gradually increased (Abe, 2015 : 28-33). In a mercantilist perspective, this could be primarily regarded as Japan’s political power lessening due to the harsh recession its economy was facing, secondly as the empowerment of European trade interests through the EU convergence effect, and thirdly as the reconfiguration of the regional relationships through the rise of China as new economic hegemon in Asia.

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Recover the economic dominance over Asia

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The claimed reconciliation between Japan and the European Union has partly evolved in the context of the Asian area’s political and economic reconfiguration. In effect, the urge for Japan to stimulate cooperation with Europe becomes coherent as soon as we take into consideration the rise of China as the new leadership holder in Asia.

Japan’s solid economic dominance over Asia, established during the seventies through the « flying-geese pattern » (To-hai, 2016 : 33), was slowly dismantled as the probable consequence of the « Lost Decade » and the weakening of Japan’s Official Development Assistance (ODA) policy. The latter had been, according to Reinhard Drifte, « the most important instrument of Japan’s postwar diplomacy » (Drifte, 2006 : 94-117), since it enhanced the development of regional infrastructures and opened lucrative export markets to Japanese commercial interests. Through public ODA, which were granted by the Ministry of Foreign Affaires (MOFA), and private foreign investment (FDI), Japan injected high amounts of capital into the « flying-geese pattern » lower levels, namely the actual ASEAN countries and the Popular Republic of China. Additionally, Japan relocated there its labour-intensive industries under the purpose of maximizing the domestic high-technological production. The associativity between flows of investment and intra-regional trade stimulated the interdependence of Northeast and Southeast Asia, matrix of a private sector-led Asian integration headed by the Japanese hegemon (To-hai, 2016 : 33). The pattern showed to be durable and ensured Japan high revenues, as well as international recognition for its global role played in the economy, symbolized by the G8 membership since 1974. Despite successful years, Japan regionally suffered from the gradually strengthened Chinese posture.

Japan initiated an impressive ODA program in China in 1979, notwithstanding the rise of nationalistic tensions regarding the claimed War reparations by China and the territorial dispute over the Senkaku/Diaoyutai Islands. Politically legitimized in both sides as a generous substitution to War reparations, the program has progressively been blamed for serving as Japanese political leverage and as a mean to pursue Japanese business interests in China. Indeed, the concentration of ODA loans in developed Chinese regions was usually linked to Japanese trade concerns (Drifte, 2006 : 97), while rural regions in the land were still facing high levels of underdevelopment. However, the Japanese ODA policy towards China partially failed in the attempt to domesticate the latter’s market. Unilaterally, abruptly and without referring to its traditional ODA guideline, the cessation of the program in 2005 can be explained by the following reasons. Primarily, the influence of Japan in China had been diluted through the extension of available loans at commercial rates, permitted by the arrival of foreign donors competing as well for the Chinese market, and thus, reducing the Chinese reliance on Japanese funds. Japan’s loss of political leverage through the weakening of its economic diplomacy, combined with a budgetary deficit, motivated the program’s termination. Secondly, the economic development of China encouraged the competition for raw materials in the international markets, exacerbating their bilateral relation, as Japan was feeling more and more concerned for its own supply. This treat has been perceived as particularly pressing when China directly penetrated Japan’s traditional backyard in 2002, by successfully signing the framework of the future ASEAN–China Free Trade Area (ACFTA), which came into effect in 2010. For its part, Japan encountered difficulties in signing equivalent bilateral FTA’s with the ASEAN countries [6], which were unwilling to exclude the less-developed rural countries from the free trade area [7], and thus lose bargaining power as an unity. In a mercantilist perspective, this could be regarded as the shrinking of Japanese diplomatic power as result of the proactive Chinese FTA diplomacy, which was challenging Japan’s economic leadership in Asia. Thirdly, Chinas military development laid defiance towards the military deprived Japan, which insecurity feeling grew with the nuclear tests in 1995 (Drifte, 2006 : 94-117).

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Table 1: Japan Trade Balance (1962 – 2014)

Already recessing during the “Lost Decade”, Japan’s economic situation worsened by the 1997 Asian financial crisis but has especially suffered from the terrible 2008 financial crisis. In 2011, Japan’s usual trade balance surplus has endured a shift for the first time since fifty years as shown in the Observatory of Economy Complexity [8] data. Japan is facing a structural trade deficit. The economy is gradually declining, while the fall in trade surplus – reaching the amount of 122 billions USD in 2014 – has been a cause of the decrease in corporations’ profits, and thus of the income’s and spending level’s downward trend (Stratfor, 2012 : 18). The government of Japan is today running a budget deficit, and relies since 1993 on stimulus packages financed by the emission of Government Bonds as unique instrument of economic recovery (Stratfor, 2008: 1-2). The gross public debt is the biggest among all OECD countries since 2015, culminating at 226% of the GDP (OECD, 2015). Economic forecasts may presage difficult years in the future, especially when considering the rising social costs as consequence of the fertility fall and aging of the population (Stratfor, 2012 : 18). Under the second premiership of Shinzo Abe – in function since 2012 – a bold monetary and a flexible fiscal policy was established under the so-called “Abenomics”, with the purpose of fighting deflation and stimulating economic growth (OECD, 2015). Abe’s set of policies pursues a clear priority towards Japan’s trade partners, namely because the increase of net exports is expected to alleviate the Government’s income deficit.

Table 2: Japan’s Bilateral Trade Balance (2014)

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The trade network of Japan consists roughly in 3 main streams with partner blocks, specifically Asia, Europe and North America. Japan’s weakened position in the Asian economy is having severe effects on its trade balance, representing 75 Billions USD of trade deficit in 2014 (60% of Japan’s total deficit). Primarily, this could be regarded as the consequence of the imports barriers raised against Japanese products, due to the incompleteness of actual’s free trade agreements. Secondly, the economical rise of South Korea has not only strengthened the competition around technological goods, thus reducing Japanese relative competitiveness, but also has absorbed supplementary commercial opportunities with China, as both countries signed an FTA in 2015. Therefore, Japan relies more than ever on a rapprochement with the EU. Launched in 2013, EU–Japan FTA/EPA negotiations have still not succeeded (European Commission, 2016). EU and Japan cumulate 1/3 of global GDP and their bilateral trade intensity is appealed to grow, thus, enhancing support for the project. Without astonishment, both sides are divided on the identical issues that characterised the Second trade conflict, i.e. the opening of the Japanese market. The European Union, whose single market is only a few protectionist policies short from being totally free, is exerting pressures on Japan to remove its long criticised non-tariffs measures and technical barriers to trade (European Commission, 2016). From an European outlook, the automotive, aeronautical, agricultural and railway technologies sectors in Japan are still strongly protected by administrative regulations and industrial standards (German Chamber 0f Commerce and Industry in Japan, 2016 : 8). Japan, in its critical situation, seems deprived of a bargaining power sufficient enough to protect its domestic market. If the government intends to reach the FTA, it will have to consent, in all likelihood, to the suppression of many of its non-tariffs barriers, the legacy of its mercantilist zenith. Even by reducing the prospect of extracting a trade surplus by suppressing the protectionist policies, it seems that Japan’s long term interest is to increase the trade amount to the detriment of a short term surplus.

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The German case-study

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After having presented the genesis, the mutual perceptions and the Japanese priorities in its relations with the European countries, our study will shift its analytical focus to the Japanese bilateral links fostered with the Federal Republic of Germany. In doing so, we will be able to confine our study to a single bilateral relationship, which will permit us to extract our data from a buoyed research subject, less extensive than if we had taken the entire European Community, and therefore more easily conceivable in strictly methodological terms. Moreover, Germany prides itself of being the country representing the most intensively the European Union’s interests in Asia. Indeed, the resilience of national particularism still impeaches the constitution of an effective communitarian EU trade policy in Asia (Stärk & Bourgeois, 2008 : 21), giving spacious fields of action to national initiatives.

We will identify the Japanese perception of Germany, as well as the arising goals, means and policy priorities, towards this country that represents today the major Japanese export destination in Europe (in 2014, exports to Germany were estimated at 24.2 billions USD) (The Observatory of Economic Complexity, 2014). Subsequently, the use of precise examples will bring enlightenment to a specific international relations’ framework, namely, the interconnectivity between distant, developed and market-orientated countries. However, by constraining the study focus to a single bilateral relation, the research design is less likely to collect the diversity of all Japanese policies and attitudes towards Europe. As an example, phenomenons like the high concentration of Japanese direct foreign investment (DFI) in the United Kingdom and in the Republic of Ireland will be disregarded by our collected data, despite their contribution to a broad understanding of EU perception by the Japanese private sector and governmental agencies.

In 1900, the private association Ostasiatischer Verein (OAV) was created for the purpose of coordinating the defense of German’s trade interests, whereupon the level of interaction gradually increased. Cooperation was enhanced under German military instruction programs, destined to modernize the Japanese army, as well as by constitutionalist exchanges. For instance, German lawyers added their expertise to elaborate the Meiji constitution. The German Empire, whose military leadership – headed by the Emperor Wilhelm II – was seeking to compete with Great Britain, relied on the OAV to gain access to rubber, the most coveted raw material at the time. German industries erected protectionist barriers in an almost similar mercantilist logic to Imperial Japan and opened labour-intensive production plants in Asian countries, such as China.

The relations between Japan and Germany deteriorated, due to their gradually competing sphere of influence. In effect, the Japanese ambitions of establishing leadership above Asia – labelled in Germany as the “Yellow Peril”- was threatened by the German strengthening presence in Qingdao – Shandong province in Mainland China – which turned into an important “Kaiserliche Marine” base, the imperial navy. As a matter of fact, the Empire of Japan joined the Allies [9] during the First World War, whose victory permitted the annexation of German concessions in Asia (Stärk & Bourgeois, 2008 : 21), i.e. the eviction of the direct German economic rivalry. Momentarily suspended, diplomatic relations were gradually boosted and reached their zenith under the Hitler Cabinet. Japan and Germany, side moved by a mutual defiance towards Great Britain and the USA, and by expansionary ambitions, formed the military alliance “Tripartite Alliance”, which included also Italy.

As a consequence of the Second World War and the alliance’s defeat in 1945, Germany was divided in two states, the Federal Republic of Germany (FRG, West Germany) and the German Democratic Republic (GDR, East Germany), therefore constraining Japan in establishing two diplomatic ties instead of one. Post-War Japan, during the economic recovery, nurtured towards the two German States different economic goals. Related to the links with the FRG, Japanese manufacture industries were eager to increase their capital amount, which had been destroyed during the Pacific War. After formal diplomatic relations were re-established in 1955, some Zaibatsu companies – essentially Mitsubishi – transferred portions of their production process in Düsseldorf’s economic pole. The reasons to explain this interest was the proximity with the Ruhr mining extraction area, which allowed a direct raw materials’ supply to the implanted companies. Moreover, German heavy industries, by combining high-quality machinery and steel production, were attractive to Japanese industrial conglomerates until the seventies (Japanisches Generalkonsulat Düsseldord, 2016).

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Table 3: Bilateral exchange hubs

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In reality, Japan was first and foremost eager to obtain foreign technology. Under the purpose of shifting its productive sector from a labour-intensive to a high-value-added, the industrial sector was constantly attempting to maximize the value chains’ efficiency through machinery, management techniques and advanced technology (Ibid. : 537). The challenge consisted in obtaining from the foreign markets the technology that Japan had not in its property and that was impossible to imagine and create in the very short term imposed by international competition. The prioritisation of technology import is even more attested by the case of the relationship established with East Germany (GDR). The socialist centralised-state was formally recognised by Japan in 1973, whereas trade relations had been already intensified since 1953 – the restoration of Japan’s sovereignty – led by interests’ convergences between companies (Kudō, 2015 : 84-113). The typical case is the 1979 business-to-business cooperation between GDR’s most competitive multinational Carl Zeiss Jena, a state-owned producer of optical instruments, and Kureha Kagaku, a chemical corporation. Kureha perfectly symbolizes the industrial shift operated in post-war Japan: originally  a coal chemistry industry,  it transited into petrochemistry and high-valued household articles’ production (Ibid. : page 89). The technology licensing agreement with Kureha was for Karl Zeiss and the GDR, as licenser of the technology, a mean to increase the country’s foreign currency reserves, diminished during the 1973 Oil crisis. For the licensee Kureha, seeking to use Zeiss’s optical measuring instruments in future pharmaceutical immunological cancer diagnosis methods, the agreement was incorporated in the expansion of the group’s research and development program (Ibid. : page 91). Besides the import of technology, which apart the Zeiss-Kureha case remained relatively low when it concerned countries of the socialist sphere, Japan was truly eager to diversify its export markets. Enthusiasm was high in the seventies, as Japan jointly financed the International Trade Center building in Berlin (Internationales Handelszentrum), symbol of the Japanese desire to open commercial opportunities (Ibid. : 88) in “less-developed” countries. However, Japan’s expectations drop gradually as GDR consumers’ demand stayed stagnant.

In the two last decades following the Reunification of Germany, bilateral trade intensity remains relatively low, despite the fact that Germany accounts for Japan’s major European partner in terms of trade, quantified at 17 Billion USD exports and 20.2 imports from Japan (German Chamber of Commerce and Industry in Japan, 2016 : 6). Knowing that both countries were respectively the third and fourth largest commercial powers in 2016 – Germany with 1.33 trillion USD value of exported goods, accounting for 8% of global trade; Japan with 624 billion USD and 4% (World Trade Organization, 2016 : 48) – the preceding quantitative data underlines the weakness of Japan-Germany trade linkages. The level of intra-industry trade has not reached proportions comparable to the trade within the EU or with China and the USA (Pascha, 2002 : 5-7). In 2014, Japan represented 1,7% of total German exports, while Germany accounted for 3,4% of Japan’s (The Observatory of Economic Complexity, 2014). Moreover, while trade intensity remained low, it stayed constant through time, which induces stagnation in exchanges (Ibid. : 2). This could be regarded primarily as a consequence of the competition between high-technological substitute goods produced in both economies, and by the historical German attractiveness for China. As a matter of fact, Japan-Germany trade structure reveals that major industries active in the bilateral exchange originate from identical sectors, namely the chemistry and the automobiles, as well as from the manufacture and machinery sectors. While Germany shows a comparative disadvantage in the machinery export, the bilateral trade balance seems compensated by a strength automotive distribution (Ibid. : 11-13).

Japan is a low recipient for German investment and productive activities, which are mainly concentrated in China at the Asian level. The foreign trade institutions from Germany have, historically, concentrated their resources in China for plural reasons. First of all, the outstanding growth potential of the Chinese domestic market is heavily attractive for multinational firms (Hazouard, 2008 : 5), whereas the Japanese market is appealed to decrease simultaneously with the drop of the population and the income level. While 450 German companies are active in Japan, 4’000 firms have activities in the Middle Kingdom (German Chamber of Commerce and Industry in China, 2016), testifying to the relatively more intensive activity of Germany in China. German interests are institutionalized through the German industry’s Asia-Pacific Committee – Asien-Pazifik-Ausschusses der Deutschen Wirtschaft (APA) – supervisor and coordinator of the regional trade structure polarized around the German Chambers of Commerce and Industry – Auslandshandelskammer (AHK) – which regroups industrial holdings, banks and commercial groups active in regional trade relationships (Hazouard, 2008 : 11). The German AHK in China is an impressive network – presided by Siemens’ CEO, Mr. Lothar Herrmann – declined in 4 regional centers, and regrouping CEOs from diverse multinationals, like ThyssenKrupp, Volkswagen and Bayer. The size of the network, an impressive matrix created by private and public convergent interests, reveals the German ambitions in China. While the latter is still today a low recipient for German investments, their amount is gradually growing and largely surpassing the FDI’s monitored in Japan. In 2014, German FDI to China reached 40 Billion Euros while stagnating at 0,69 Billion in Japan. Since recently, the attractiveness of the Chinese market is less related to the low production costs than to the increase of the consumption goods demand, enhanced by an emerging middle class constituted of 200 million people. For instance, the sales forecast for the automotive sector  is expected to reach 140 million automobiles in 2020 – whereas they were only 29 million in 2006 – and thus increasing the enthusiasm of German companies such as Volkswagen, Audi and DaimlerChrysler. In other words, the economic expansion of Chine has been translated in the rise of the demand for high-technological consumption goods, machinery for public infrastructure, energy and electronic devices. The Chinese middle class’ emergence is not only stimulating the international competition between Japan and Germany, but also between German companies, eager to gain new juicy commercial opportunities.

Despite the low level of commercial linkages, Germany and Japan have forged a solid diplomatic partnership, namely during the negotiations for the United Nations Security Council (UNSC)’s reform. As economic superstates, the two countries share the mutual national interest of gaining a seat among the 5 actual nations. United for the last decade with two other candidates, India and Brazil, Germany and Japan have until recently conducted Foreign Minister’s meetings. Destined to counterbalance United Nations countries’ misgivings by an increased bargaining power, the association of the 4 countries has failed until now to gain permanent seats (Stratfor, 2011 : 1).

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Conclusion

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This study is an attempt to underline the significance of economic diplomacy, which in the absence of military means can  constitute an alternative way of pursuing national power. The case of Japan neo-mercantilism allowed the author to detect some informal functioning features of the economic diplomacy, such as the interests contained in the free trade agreements, the FTA and the ODA policies. Moreover, the concept of national quest for international leadership, close to a structuralist conceptualisation of the international relations, has permitted a multidimensional outlook’s erection. The relationship between the European Union and Japan has therefore shown to be transited by multidimensional patterns, namely the resilience of historical considerations, the domestic factor’s importance in the foreign policy’s formulation and structuralist theories. Indeed, the plethora of data studied here has revealed that foreign policies are still established according to antagonistic principles, inducing the ontological dominance of the realist view of international relations.

The bilateral relations between Japan, the European Union and Germany haven’t implied rejoicing forecasts. Japan has seen its commercial opportunities and trade surplus decrease in Asia, while the country companies are unsuccessful in their effort to compete with China. The budget deficit is gradually increasing while the population is aging and requesting additional levels of public spending that the debt will not be able to support indefinitely. Thus, Japan policymakers are eager to open new markets that may potentially represent fruity Japanese exports recipients. The European Union and the North American economic zones appear to be stable alternative markets, whose high per capita incomes suggests commercial opportunities. However, the threat above the Trans-Pacific Partnership (TPP) emanating from president Trump’s office and the comparative low attractiveness of the Japanese market for multinationals reduce prospects of success. Japan is in all likelihood condemned to implement new developmental  strains if it aims to avoid a reverse introverted cycle.

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Adrian Gasser

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 References

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Comments

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[1] [Comm] In 1931, Finance Minister Korekiyo Takahashi applied Keynesian principles to Japan’s macroeconomic policies and abrogated the Gold Standard System (Abe, 2015, page 34)

[2] [Comm] The Zaibatsu military-industrial complex, empires gravitating around family “holding-dominated companies and vertically structured, have been progressively replaced by the new postwar system Keiretsu, formed by commercial and industrial empires. Keiretsu, by tacitly suppressing the hereditary family influence, organized the economic running on city-bank financing and capital diversification (Dower, 1999, page 545).

[3] [Comm] In 1985, the Plaza Accord illustrated the attempt of the USA and the European countries to decrease their bilateral trade deficit towards Japan, by imposing the appreciation of the Yen. In doing so, the USA was countering the growing Japanese global economic dominance. Previously tolerated, the Japanese economical preference became untenable as the Cold War was relaxing, as well as the objective of the USA to build an anticommunist bastion in Asia. The appreciation of the Yen caused an asset bubble in the country, consequently the so-called “Lost Decade” (Dower, 1999).

[4] [Comm] GTTA: General Agreement on Tariffs and Trade, signed in Geneva in 1949. Japan joined the organisation in 1955 only, facing strong resistances on behalf of the developed countries that Japan had challenged during the first trade conflict, namely Great Britain and Holland (Abe, 2015, page 19).

 [5] [Comm] The European Community side shouldn’t be confused with an unilateral actor. The European policies taken in response to the trade conflict emanated from fragmented actors, such as the European Commission, the European Council and the Member States themselves, which consequently have shown some contradictions in their policies if compared. As example, Benelux and Germany allowed free imports of Japanese cars, all the contrary of France and Italy (Abe, 2015, page 17).

[6] [Comm] The negotiations were blocked in 2005, but both sides finally reached an FTA in 2008. (MINISTRY OF FOREIGN AFFAIRS, ASEAN-Japan Comprehensive Economic Partnership Agreement, 2014)

[7] [Comm] Required by Tokyo to protect the Japanese political powerful agricultural sector from Southeast Asian competition in goods.

[8] [Comm] Supported by the Massachusetts Institute of Technology (MIT) Media Lab.

[9] [Comm] Great Britain and Japan were formally allied, as consequence of the British fear of a Russian widespread in China and of the Japanese strategy of dividing Western opinion towards the rise of its Empire.

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Books

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  • HOLCOMBE, Charles. The Genesis of East Asia, 221 B.C.-A.D. 907. Honolulu: University of Hawaii Press. 2001, p. 16.
  • BULLOCK, Robert W., Japan. In : Jeffrey Kopstein, Mark Lichbach (ed.). Comparative Politics. Cambridge : CUP, 2000, P. 145-178.
  • DOWER, John. Embracing Defeat : Japan in the aftermath of World War II, London : Penguin, 1999.
  • MACLEOD, Alex & DUFAULT, Evelyne & DUFOUR, Guillaume & MORIN, David (Eds.) 2008. Relations internationales. Théories et concepts. Montréal : Athéna., 2008.

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Academical articles

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  • PASCHA, Werner, « Economic Relations Between Germany and Japan-An Analysis of Recent Data », in DUISBURG WORKING PAPERS ON EAST ASIAN ECONOMIC STUDIES, Gehard Mercator Universität Duisburg, 61, 2002.
  • KUDŌ, Akira. Economic relations between Japan and East Germany: the developing relationship of Kureha Kagaku and Carl Zeiss Jena after the first oil crisis, Entreprises et histoire, volume 3, n° 80, 2015, pages 84-113.
  • TO-HAI, Liou. “Taiwan’s Role in the Enhancing Asia-Europe Economic Interactions”, The Current Issues of Economic and Social Integration in Hungary and Taiwan, Proceeding of the Scientific Conference of Budapest Business School, University of Applied Science. 2016, pages 32-44.
  • ABE, Takeshi. The “Japan problem”: the trade conflict between the European countries and Japan in the last quarter of the 20th century, Entreprises et histoire, volume 3, n° 80, 2015. pages 84-113.
  • DRIFTE, Reinhard. The ending of Japan’s ODA loan programme to China—All’s well that ends well?, Asia-Pacific Review, Abingdon: Routledge, 2006 [online], pages 94-117. http://dx.doi.org/10.1080/13439000600697704
  • STÄRK, Monika & BOURGEOIS, Isabelle. « Considérer la Chine avec le respect dû à un partenaire », Regards sur l’économie allemande [online], n° 87, Paris: CIRAC, 2008, pages 13-26. (accessed October 01, 2016). http://rea.revues.org/970
  • HAZOUARD, Solène. « Des entreprises allemandes bien positionnées en Chine », Regards sur l’économie allemande [online], n° 87, Paris: CIRAC, 2008, pages 5-12. (accessed October 01, 2016). http://rea.rvues.org/970

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http://www.japan.ahk.de/fileadmin/ahk_japan/Publikationen/PDF/German_Business_in_Japan_2016_en.pdf (accessed November 17, 2016)

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http://china.ahk.de/fileadmin/ahk_china/Dokumente/Publications/Business_Confidence_Survey_2016.pdf (accessed December 14, 2016)

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http://trade.ec.europa.eu/doclib/docs/2016/october/tradoc_155060.pdf (accessed November 14, 2016)

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http://atlas.media.mit.edu/en/profile/country/jpn/ (accessed December 08, 2016)

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https://www.stratfor.com/analysis/japan-germany-lessons-deficit-spending (accessed November 13, 2016)

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https://www.stratfor.com/situation-report/japan-brazil-germany-india-fms-meet-unsc-seat(accessed November 06, 2016)

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http://www.mofa.go.jp/policy/economy/fta/asean.html

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À propos de Adrian Gasser

Auteur et correcteur du Département Publications et Médias de COSPOL- Comité Science Politique, anciennement responsable dudit département (2015-2016) Etudiant en troisième année de bachelor en Science Politique à l'Université de Lausanne.

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