Japanese Business Gains From The U.S.-China Split

To all appearances, Japan has remained Washington’s close ally, not only militarily but also in Washington’s efforts to constrain Chinese technological advances. Japan, for instance, has defied China in sovereignty disputes over unoccupied islands in the East China Sea. Tokyo has, if anything, committed itself more strongly than America to the defense of Taiwan. Japanese Prime Minister Fumio Kishida has made efforts to unify the G-7 advanced economies of the world to break China’s near monopoly on rare earth elements. Japan has also joined the Washington in some of its bans on trading technology with China. Statistics add an element to the story outside diplomatic exchanges. They show that Japanese business has made remarkable gains by stepping into the growing economic distance between the United States and China.

Most telling are the remarkable export figures. According to the statistical arm of Japan’s Ministry of Finance the nation’s exports have surged. In January, the most recent month for which data are available, overall exports showed almost 12% growth over January 2023 to a level of 7.33 trillion yen ($48.9 billion). Exports to the United States outpaced the average, expanding in January almost 16% over year-ago levels, while exports to China led, rising almost 30% above levels of January 2023. Leading the growth in sales to China were shipments of computer chips, semiconductor components, and complete sets of equipment, as well as transportation machinery, in many ways the same products that the United States has decided to stop exporting to China.

True, Japan has yielded to pressure from Washington to limit technology sales to China. In a revision of its Foreign Exchange and Foreign Trade Act, Tokyo proscribed exports of some 23 chipmaking items, including much technology essential to the production of cutting-edge chips, including equipment for cleaning, monitoring, and lithography. But the data says that Japan has not followed through as actively as it seemed to promise. Much Japanese technology clearly is going to China. The picture is further complicated by a recent survey conducted by the Japanese Chamber of Commerce and Industry in China, which shows more than half the firms it surveyed either increased or maintaining their investments in China during the past year. Clearly, Japanese business has seen and is taking advantage of an opening left by the China-U.S. split.

Increased exports to the United States add to the story and suggest that Japanese production is substituting for what China once sent to America. There is, of course, only so far Japan can go in this regard. Japan does not produce many of the labor-intensive, low-value goods that the United States commonly imports from China. Nor does Japan possess many of the assembly operations that firms such as Apple maintain in China. Nonetheless, it should be clear from the fact that Japanese export growth to the United States has outpaced overall Japanese export growth that its producers have managed to substitute for the Chinese products kept away from the America either by high tariffs or other exclusionary Washington policies or more generally by the efforts of American businesses to diversify supply chains away from China.

There is no sign of Washington pressuring Japan to back away from this opportunity. That may yet come. Whatever technology Japan willingly sells in China thwarts in some way Washington’s efforts to deny China advanced technological products and support. If the scale of such Japanese opportunism grows, Washington will likely apply some kind of pressure to stop the Japanese effort. And if history is any guide, Tokyo will bend to that American pressure. But so far there is nothing. Meanwhile, both Japan and China are benefitting at the expense of American business.