How Neomercantilist Japan Became a Leading Defender of Economic Openness

Abstract

How Neomercantilist Japan Became a Leading Defender of Economic Openness William W. Grimes (bio) Saori Katada’s new book Japan’s New Regional Reality: Geoeconomic Strategy in the Asia-Pacific provides the best guide to Japan’s contemporary foreign economic policy available today. While the book is written in a modest tone that belies its ambition and importance, there is much to learn here about Japan, and its role in Asia and the world, that is new and exciting. Japan’s New Regional Reality deserves to be read by both scholars and practitioners with an interest in the Asia-Pacific’s political economy. The book combines analysis of Japanese domestic political economy, the international environment, and the interactions between the two. Unlike most authors, Katada is equally comfortable with domestic and international politics as well as—perhaps more unusually—a full range of economic issues from trade and investment to finance and development assistance. Such thoroughness is what makes the story so compelling. The book is not an exercise in theory-building or methodologically driven political science; rather, it describes and analyzes in detail, and from multiple angles, a sea change in Japan’s political economy. Japan, in Katada’s telling, is a country whose role in the world economy and economic governance has been transformed by globalization and the rise of China. It is “not the same Japan that used to engage in trade conflicts with the United States twenty-odd years ago, and this new Japan influences the Asia-Pacific region in ways that are quite different from the past” (p. 1). It has turned away from the neomercantilism of the Japanese miracle and become a dedicated pillar of the liberal international order. The book analyzes both the reasons that the Japanese political economy has been transformed and the implications for Japan’s role in the world. Equally important, Katada takes seriously the idea that the Japanese state has acted strategically, and not just reacted to either U.S. pressures or domestic interest group politics. The shift of Japanese business preferences from neomercantilism to liberalism was partly driven by global liberalization pressures outside the [End Page 146] country in the 1980s and early 1990s. These included U.S. gaiatsu (external pressure) on Japan to lower trade barriers and reduce anti-competitive practices within Japan as well as the growing ambition and reach of global and regional trade rules. These pressures reduced the Japanese state’s ability to protect and nurture domestic companies. Equally important, however, was the rapid appreciation of the yen after the 1985 Plaza Accord, which created incentives for Japanese firms to procure offshore production at the same time that other East Asian economies in China, South Korea, and Southeast Asia were dismantling barriers to trade and investment in order to advance their own industrialization goals. As Katada puts it, Japanese businesses became “disembedded” (p. 5, and discussed in chapter 3) from the cozy political and economic networks that had long characterized the relatively closed domestic economy. In Katada’s telling, however, Japan is not merely a poster child for globalization and the triumph of market forces. Geoeconomics also looms large in this story. Three threads come together in chapter 3: growing regional economic integration, the loss of trust in U.S. benevolence, and the rise of China. First, the growth of regional production networks in East Asia meant that Japan’s outward economic engagement was no longer U.S.-centered. It also meant that Japanese companies became disembedded from their domestic supplier networks and stable labor-management systems. This shifted the purpose of Japanese foreign economic policy from appeasing U.S. demands toward nurturing complex value chains in which Japanese firms were often the key players. Second, with the 1997 Asian financial crisis, Japanese policymakers became aware that their priorities in Asia differed significantly from those of the United States, making apparent the need for regional cooperation in which Japan could play a key role in providing leadership and public goods. Finally, the rise of China as an economic and political power has both enticed and frightened Japanese leaders. They wanted, and still want, to gain from growing Chinese prosperity and productive capacity while...