Japan's Security and Economic Dependence on China and the United States

Cool Politics, Lukewarm Economics

Keisuke Iida

• Publisher: Routledge
• Year: 2017
• Topic: Politics & International Relations
• eBook ISBN:
  9781317311409
• Subtopic: Diplomacy & Treaties
• Index: Politics & International Relations

With the rise of China, Japan and many East Asian countries are caught between maximizing profit from economic ties with her, and strengthening alliances with the United States to prevent China from overpowering them. Liberals and realists thus debate over the likelihood of either security tensions easing up or economic interdependence getting reduced eventually. On the other hand, Iida introduces a new theory that reinterprets the relationship between state security and economic interdependence among countries in the Asia-Pacific region.

Based on case studies of recent episodes in East Asia, and especially on the experiences of Japan, this book highlights an interesting dynamic between security and economic interdependence: risk avoidance. By understanding how risk avoidance affects the behavior of these countries in terms of security and economics, it becomes evident how they eventually settle into what Iida calls "Cool Politics" and "Lukewarm Economics".

1 The East Asian paradox¹

Why does high economic interdependence persist in East Asia despite antagonism and anxiety caused by security tensions among the major players, namely, China, Japan, and the United States (US)? The existing theories of International Relations (IR) have been tainted by the special experience of the Cold War years: high security tensions combined with little economic interdependence between East and West, vindicating the Realist scenario, while Liberal theorists championed high economic interdependence backed by security cooperation among the Western partners as proof of their theory. The real world rarely exhibits such contrasts in other regions or other periods of time, and the mixed situation in East Asia today is the rule, not the exception. This is because both state and private actors try to reconcile their security and economic objectives. Thus, ‘cool politics, lukewarm economics’ should be the norm rather than the exception. This chapter will develop this theory by critiquing the existing theories.

1.1 Introduction

This book tries to explain why high economic interdependence and high political tensions simultaneously persist in East Asia. As fully documented, high economic interdependence developed and lasted in the post-Cold War era in East Asia. At the same time, East Asia has not been immune to high political and security tensions among the major players in recent years. From the Taiwan Straits Crisis of 1996 to the Senkaku (Diaoyu) Islands dispute between China and Japan in recent years, the major players in East Asia – China, Japan and the US – have had more than a few disagreements on highly geopolitical questions and have exchanged harsh words if not gunshots. Why they have managed to escape from the classical security dilemma is a question worth asking, but the more interesting question is this: why they have continued to engage in highly intense economic exchanges with each other year after year despite the real possibility of shooting wars.

1.1.1 Existing treatment

These questions have not escaped the attention of perspicuous observers of Asian affairs.² Pempel (2013) noted four facts about the political economy of East Asia in recent years: (1) mounting security tensions among players, (2) increasing economic interdependence among all the players, (3) the ‘puzzle’ of regional peace, and (4) very rapid power transition. These are very contradictory (e.g. power transition may lead to war, but peace prevailed; security tensions should dampen economic interdependence, but have not), but Pempel did not offer any compelling explanations for these contradictions. Several authors have given some hints as to these contradictions, however. Kastner (2013) examined the cross-Strait relationship and presented an intriguing model in which economic interdependence has contradictory effects on political relations, depending on the political orientation of the Taiwanese leadership. In other words, economic interdependence does not always have a salutary impact on security. Iida (2013) traced the history of trilateral dialogue among China, Japan, and Korea, and found evidence for both Liberalism and Realism. Since Realism and Liberalism predict contradictory effects, their coexistence may explain the conundrum in East Asia.

Similarly, Goldstein and Mansfield (2012) noted the same mix of contradictory phenomena: the substantial rise in cross-border economic activity and the persistence of insecurity (although no war has broken out since the end of the Vietnam War) in East Asia. Goldstein and Mansfield, however, did not offer any explanation for the contradictions. The authors in the Goldstein/Mansfield volume do not make matters easier. For example, Kahler (2012) and Wu (2012) posit contradictory hypotheses, with Kahler arguing that economic institutions have no impact on security and Wu arguing that they do have ameliorating effects on security cooperation.

1.1.2 The ‘East Asian paradox’

Let us call this paradoxical coexistence of high economic interdependence and high security tensions in East Asia an ‘East Asian paradox’. This is justifiably called a ‘paradox’ because it goes against the conventional wisdom about the relationship between security and economic interdependence in IR theory. Realism and Liberalism, which are usually taken as rival theories in IR, in fact predict the same strong correlation between economic interdependence and security: high interdependence and security go together, and low interdependence and insecurity go together.

In order to skirt the difficult definitional debate on the highly loaded term ‘security’, I use the ordinary dictionary meaning of ‘insecurity’ – ‘The state of being open to danger or threat’ (Oxford English Dictionary) – and interpret ‘security’ as simply the presence of no or low insecurity.³ This term could apply to both states and individuals.

1.2 Realist and Liberal equilibria

Realism and Liberalism are two rival theories in IR. The theorists from these different camps disagree on many issues, but when it comes to the correlation between security and economic interdependence, they tend to agree, although the causal directions they may have in mind are different. In the following, Realist theory considers that there are two ‘equilibria’ or stable states of affairs: (1) insecurity combined with low economic interdependence (I call this a ‘first Realist equilibrium’ or ‘Realist equilibrium I’) and (2) security combined with high economic interdependence (I call this a ‘second Realist equilibrium’ or ‘Realist equilibrium II’).

On the other hand, Liberal theory tends to focus on the latter combination: high economic interdependence combined with security. If this is called a ‘Liberal equilibrium’, it is the same as the second Realist equilibrium or Realist equilibrium II. Thus, in the interests of time, I use the term ‘Realist equilibrium’ to denote the first Realist equilibrium, and the term ‘Liberal equilibrium’ to denote both the Liberal equilibrium and the second Realist equilibrium at the same time.

1.2.1 Realist predictions

In the following, I will show that Realist theory predicts that security tensions (i.e. the presence of insecurity) lead to low economic interdependence and lack of such tensions leads to high economic interdependence. Thus, Realists predict two contrasting situations: (1) adversaries or potential rivals having low economic interdependence with each other (Equilibrium I) and (2) allies and other very friendly states having high economic interdependence (Equilibrium II).

An essential element in any Realist theory is that ‘security’ is a paramount concern of states. For example, by quoting Carr (1964, 109) (‘Potential war [is] a dominant factor in international politics’), Kirshner (1999, 72) argues that Realism dictates that ‘states must anticipate the possibility of war’. Here, security means absence of war or other deadly rivalry, and insecurity means the opposite. Thus, when insecurity prevails among states, states must prepare for possible war or other militarized conflicts.

Because Realists see a long-run harmony between power and plenty (Viner 1948), economic policy is also guided not solely by the quest for economic welfare, but by the quest for wealth that will contribute to state power and hence security. Kirshner (1999, 71) says that ‘industrial capacity, access to raw materials, and assurance of adequate finance’ all favour increasing state power.

Thus, Gowa and Mansfield (1993, 408) predict the following:

[T]he absence of a supranational authority in the international system enables a state to resort to force at any time to achieve its goals. The probability that a state will do so depends in part upon its power, which, in turn, depends partly upon its real income.

Gowa (1989, 1994) coined the term ‘security externalities’ to describe the fact that states’ economic policy is guided by security concerns. ‘Externalities’ is a term economists use to describe a phenomenon like pollution where an agent’s activity affects others as an ‘unintended’ consequence. The economic policy of a state may have such ‘externalities’ in terms of security because economic policy naturally has an impact on one’s wealth, which is indirectly related to power and security. One state’s economic policy may affect wealth and power of other states, with natural consequences for their security. Gowa’s notion of ‘externalities’, however, is slightly different from that of economists because, in economic theory, profit-seeking firms are not presumed to care about externalities (they pollute unless they are regulated). Gowa, in contrast, assumes that states are fully aware of ‘security externalities’ and conduct their business accordingly. Allies, which gain from each other’s increasing income and power, tend to trade with each other, for example (Gowa and Mansfield 1993; Gowa and Mansfield 2004 for industries with economies of scale).

Expanding on Gowa’s theory of ‘security externalities’, Skålnes (2000) argues that using various instruments such as trade, aid, and finance, states engage in discriminatory foreign economic policies. This is because if the trade partner is one’s ally, one needs its support in case of war or international crises, and the greater the power of the ally, the more beneficial it is for the ally’s partner.⁴ According to Skålnes, discriminatory policies are particularly geared towards benefiting allies and hurting adversaries.

In combination, these theories suggest the following scenarios. Between two rival states, which have serious disputes with each other and have a possibility of militarized conflict, economic interdependence will be low because states will prevent trade and financial flows that will contribute to their rivals’ power and plenty. On the other hand, between two friendly states, these adversarial intentions do not exist; trade and investment flows prosper between these states, leading to a high degree of economic interdependence (Dixon and Moon 1993).

In sum, Realists predict two contrasting pairs of states: (1) between adversaries, high security tensions and low economic interdependence; (2) between friends, low security tensions and high economic interdependence. Between allies, insecurity is low because they are supposed to cooperate in each other’s security affairs, and quite high economic interdependence will follow.

Incidentally, Realists admit that private economic agents may have divergent interests from states. Skålnes says, ‘Economic interest groups … seek to influence policy-making to maximize their own economic welfare’ (p. 20). Thus, ‘[p]rivate domestic interests … may constrain a government’s ability to develop grand strategies that accurately reflect strategic assessments’ (p. 21).

However, Realists have two answers to this problem. First, states may nevertheless take discriminatory economic policies in such a way that they guide private economic activities to be more in line with state interests. In particular, these discriminatory policies may be particularly useful between allies. Skålnes calls it ‘ “tied hands”: policymakers may adopt discriminatory policies to shore up domestic support for an alliance in the ally’ (p. 22).

Another Realist response is the ‘follow the flag’ hypothesis: private economic agents act according to the mood of the time.⁵ Pollins (1989a, 1989b) showed that imports react very sensitively to cooperation between nations: the friendlier the pair of states concerned is, the more trade is conducted. Conversely, conflict suppresses trade (Keshk, Pollins and Reuveny 2004).⁶ Pollins attributed this empirical finding to risk avoidance and/or patriotism of private agents. First, ‘the buyer could choose a seller from a friendly nation in order to minimize the possibility of economic disruption’ (1989a, 741, italics in the original). Alternatively, consumers in the importing nations may have a strong sense of patriotism, which endorses the policy of their state towards friends and foes: ‘consumers may wish to express goodwill or solidarity toward those whom they identify as friends, while shunning or punishing those they perceive as foes’ (p. 740).⁷ If either or both of these suppositions are correct, they will predict a strong negative correlation between security tensions and interdependence between a given pair of states. Between allies, high interdependence develops, and between potential and actual adversaries, interdependence remains low. The result is the same as explained above: both Equilibria I and II obtain.

1.2.2 Liberal prediction

Unwittingly, the greatest theoretical rival of Realism, Liberal theory, also predicts a strong correlation between security and interdependence, althoug...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of tables
• Preface
• Acknowledgements
• Japanese and Asian terms and conventions
• List of abbreviations
• 1 The East Asian paradox
• 2 Insecurity and economic interdependence in East Asia
• 3 Rare earth: China’s economic coercion and the demise of Chinese monopoly
• 4 Shale gas and oil: Japan’s quest for alternative sources of energy
• 5 Trade agreements as geoeconomic instruments
• 6 Japanese investment in China and ‘China-plus-one’
• 7 Conclusions
• Bibliography
• Index