Asia-Pacific, Power & Security Recalibrating Japan’s Economic Interests in Taiwan

May 7, 2024
By Shihoko Goto, Director, Indo-Pacific Program, Wilson Center | Perry World House

Since the US departure from the Trans-Pacific Partnership (TPP) multilateral trade agreement in January 2017, Japan has played a critical role in championing global trade and economic partnerships. Amid growing expectations for Tokyo to take on a leadership role in shaping the economic rules and norms of the Indo-Pacific and beyond, Japan has stepped up its public support for defending Taiwan’s economy as well as its security. But while Tokyo may be less risk-averse, its interest still remains to maintain cross-Strait stability and to manage relations with China to secure its own economic future.  

Taiwan’s CPTPP status quo  

The successful conclusion of the TPP’s successor, the Comprehensive and Progressive Trans-Pacific Partnership agreement (CPTPP), has been a game-changer for Japan in setting the trade agenda worldwide. Firstly, it has led to a reimagining of a regional economic architecture without the United States but instead with Tokyo at the helm. What’s more, the fact that Japan signed bilateral trade deals with the European Union as well as the United Kingdom, in addition to joining the Regional Comprehensive Economic Partnership (RCEP) agreement, demonstrated Japan’s appetite for trade deals that contrasted sharply with the US position. Secondly, expectations for Japan to champion a rules-based economic order worldwide have been raised, and Tokyo is increasingly seen to pave the way forward for shared economic interests across countries to lead to cooperation. Thirdly, a CPTPP in which Japan plays a pivotal role has emerged as a new battleground for challenging the prevailing regional order and China’s hegemonic presence. Whether or not Japan and other countries including Australia and New Zealand can work together to prevent China from joining the CPTPP without Taiwan will be key to securing not only Taipei’s trading future.  

Tokyo’s success as a gatekeeper of the CPTPP will be a key factor in defending Taiwan’s economic as well as political standing moving forward. Although Japan was the last country to join the TPP in 2013, Tokyo has been clear about the political as much as the economic goals of the framework from the beginning. While the extent to which China is serious about its bid to join the CPTPPP in September 2021 remains an issue for debate, Beijing’s formal accession request to the trade deal has without doubt has led to a deep schism amongst the original eleven member countries. Unlike trade agreements such as the USMCA which is limited to Mexico, Canada, and the United States, one of the strengths of the CPTPP is its openness to new members and expansion. Yet, the fact that both China and Taiwan have applied for membership within a week of one another is proving to be a dilemma not just for the future of the CPTPP’s expansion, but for the unity of its existing members. Japan’s balancing act will be to remain a staunch proponent of Taiwan joining the CPTPP on the one hand, and also maintain stability within the CPTPP where the schism over whether or not China or Taiwan should join runs deep. For Tokyo, the most pragmatic approach would be to maintain the status quo within the trade framework by postponing the prospect of either Taiwan or Beijing joining in the future. 

Coercion as a Force Unifier  

As Taiwan seeks to secure its space in the international economy, Japan can continue to play a significant role in empowering Taipei to push back against economic coercion. China’s ban of Taiwanese pineapples in March 2021 led to a campaign by Japanese consumers to buy pineapple. In fact, public interest in supporting Taiwan by purchasing the pineapples made it almost impossible in some Japanese stores to buy the sought-after fruit. The grassroot campaign succeeded not only in helping Taiwanese farmers and the agricultural sector more broadly, but elevated Japanese public awareness of the intense coercive pressure Taiwan continues to face. The purchasing of Taiwanese goods banned by China became a political act, and a demonstration of solidarity amongst Japanese consumers in defense of Taiwan.  

Such public awareness of Taiwan’s vulnerabilities and outrage against Chinese political aggression is critical for Taiwan’s economic as well as its political future. To be sure, the G7 and other groups have elevated discussions about pushing back against Chinese economic coercion as Beijing continues to weaponize global interdependence for its own political gain. It has not, however, been easy to establish a roadmap against economic coercion, given the challenges of defining how to develop a collective economic security network or even when such mechanisms should come into effect. But what is clear is that Chinese economic coercion, be it through outright import bans or massive tariff levies, has led to public outrage as well as government opposition.  

As a casualty of Beijing’s coercive actions itself over the years, Japan’s commitment to pushing back against China weaponizing its economic position for political gain is clear. Tokyo has also been instrumental in elevating the discussion about collective resilience towards coercion, and efforts to enhance means to deter coercion by authoritarian regimes have been widely supported by voters and corporate leaders as well as policymakers alike. Taiwan is seen as an integral part of such efforts, not only to benefit from international coordination against coercion, but also to be a key player in calling out China against its abuse of economic statecraft. Coercion has not only exposed Taiwan’s economic vulnerabilities, but also has further international public opinion to come to Taiwan’s economic defense. Japan can play a key role not only in enhancing Taiwan’s ability to push back against coercion, but also to raise awareness of why Chinese economic malpractices against Taiwan or any other economy must have consequences.  

Cooperation or Competition in Chips  

When it comes to the semiconductor industry, however, Taiwan is as much a source of competition as much as cooperation with Japan. As such, paving the way forward for a bilateral partnership is not as straightforward.  Like all advanced economies, Tokyo is developing a roadmap for economic resilience that has led to more investments in critical industries which includes semiconductors. TSMC’s announcement in October 2021 that it would invest 1 trillion yen to develop a cutting-edge fabrication facility was heralded by Japan as a major coup for the country to produce logic chips and supported by hefty Japanese government subsidies. Yet, the following year, Japan announced that it would also invest an additional 70 billion yen for its own home-grown startup company to produce chips below the 2-nanometer threshold. As a startup, Rapidas has not only attracted the capital and support of some of Japan’s leading companies, but it also marks the beginning of Japan preparing to compete with TSMC head-on.  

TSMC has been careful to ensure that the technologies to produce its most advanced chips stay at home, thereby reassuring those in Taiwan concerned about the staying power of the so-called silicon shield. Closely guarding technology exports is without doubt critical for the future of TSMC and indeed Taiwan. Nevertheless, that has not stopped even Taiwan’s most reliable allies, including Japan as well as the United States, to invest in their own domestic advanced research and development capabilities. Such efforts have not precluded from reaching out to Taiwan or to TSMC, but the urgency to become more resilient and self-sufficient in key industries, including semiconductor design and manufacturing, is only heating up. What’s more, the prospect for companies to share and coordinate on supply chain resilience in the chip industry will not be easy, if the lessons learned from the CHIP4 alliance between Japan, South Korea, the United States, and Taiwan is to be a gauge of future prospects for cooperation.  

Public Support for Taiwan Key for Japan-Taiwan Economic Partnership  

Japan remains one of Taiwan’s most critical allies and supporters. The mutual respect and understanding of interdependence were demonstrated most recently in September 2022, when Lai Ching-te attended the funeral of Japanese Prime Minister Shinzo Abe. As Vice President of Taiwan, Lai became the highest-ranking sitting Taiwanese official to visit Japan.  

The trust between the two governments is demonstrated on the economic front in Japan’s commitment to continue supporting Taiwan’s bid to join CPTPP, and conversely, to oppose China’s entry into the trade deal without Taiwan also being part of the pact. But Tokyo is also constrained insofar as it will not be able to support Taiwan’s membership over that of China, given the deep schism within the trade pact about how to manage relations with Beijing. For Tokyo, the overall goal remains to maintain stable economic relations with China in addition to protecting the status quo in cross-Strait relations.  

At the same time, Japan and Taiwan are business competitions, and their rivalry must not be ignored. The competition in the semiconductor industry worldwide is heating up, and while Taiwan is developing a strategy to ensure its economic resilience by defending its chip sector, Japan continues to step up investments to give rise to its own advanced semiconductor industry. Such competition is critical to spur innovation, but at the same time, it becomes an obstacle when it comes to cooperation.  

But it is in pushing back against Chinese economic coercion that both Japanese and Taiwanese interests are aligned at all levels. A win for Taiwan in confronting Chinese coercion must be a constant, coordinated effort that requires support from the government as well as the public. The Japanese leadership and public have shown time and time again that they are prepared to support Taiwan in pushing back against China. An anti-coercion strategy is not simply about deterring China from leveraging its economic standing, but it is also raising awareness about the dangers of authoritarian rule. Cooperation between Taipei and Tokyo on coercion can be the low-hanging fruit between the two sides for greater political as much as economic partnerships moving forward.