Japan’s Economic Turn to Europe

Economics was at the heart of Abe Shinzo’s project for Japan. For all the attention to constitutional revision or security and foreign policy reform, his agenda for national rejuvenation rested on a restructured and revived economy. An energetic and dynamic economy would provide the government with the means to finance Abe’s ambitions: a more formidable military and a more expansive presence overseas so that it could promote its values and interests. Economic success promised not just soft power, but also the means to assert Japanese preferences in rule-making. Most importantly, economic success would restore confidence to a nation battered by years of stagnation and force other countries to take Japan seriously. With the US from 2017 wary of trade agreements, Abe looked to Europe for partners to realize the international dimension of his economic aspirations.

International economic policy, and trade specifically, weighed heavily on Japan’s calculations. Policy makers in Tokyo envisioned international trade rules as ways to promote the structural reforms of the “third arrow” of Abenomics. Those same agreements could be used to shape regional dynamics and rules and norms in ways that promoted and protected Japanese interests. A conservative Japanese politician, Abe naturally rooted his thinking in the relationship with the United States, but Washington’s reluctance to partner with him on large elements of his international trade agenda obliged Abe to look elsewhere for support.

He found it in Europe. This chapter looks at Japan’s economic relationship with Europe during the Abe years through a strategic prism. It explores the emergence of that partnership, its implications and how it has weathered the shocks of the last decade. A later section turns to the Suga and Kishida periods for insight into Japan’s evolving economic ties. While some of the principles that guided Abe’s foreign economic policy in general, and Japan’s relations with Europe more specifically, predated his administration, Abe deserves credit for having the readiness and the flexibility to adapt to the unforeseen circumstances that arose with considerable regularity during his second term in office. While committed to the international order that arose in the aftermath of World War II, Abe recognized the need for adjustment within that framework and worked assiduously to both modernize and protect it. The initiatives he launched were not complete when he left the Kantei for the second and final time, but he put Japanese policy on a trajectory that his successors have maintained and which continues to guide international economic policy in Tokyo.

1945-2012: From Tensions to Partners

Japan’s relations with Europe have since World War II evolved from indifference to antagonism to a strategic partnership that is best understood as an alignment of interests. Europe and Japan were literally a world apart in 1945, with both focused on rebuilding from the devastation of war. In that effort, the United States was the key partner, providing money to rebuild and the security umbrella that they sheltered under as they did so. Japan’s explosive growth during the 1960s and the export machine that drove it transformed the country’s image in Europe from that of a “transistor radio salesman” in French President Charles de Gaulle’s notable quip about Prime Minister Ikeda Hayato to an economic aggressor as its products generated growing trade imbalances. As Watanabe Hirotaka noted, from 1968, trade between Japan and the European Community (as it was then known) was marked by a persistent surplus in Japan’s favor. The country’s export drive, sometimes characterized as “a flooding strategy,” focused on key industrial sectors such as automobiles, electronics, and steel, among others, and generated a $2 billion deficit for Europe in 1974, one that would swell to $10.3 billion by 1981 as Japanese exports grew by 330%. After a brief lull, the tsunami resumed and by 1987, the deficit would double to $20 billion. Japanese investment in Europe enjoyed equally explosive growth, expanding from $29 million in 1971 to $113 million in 1972, and then after the Plaza accord, it swelled to $1.8 billion in 1985 and would nearly double the next year to $3.4 billion.¹ The adoption of voluntary export restraints and import quotas helped ease those trade tensions.

The end of the Cold War triggered a reassessment of the bilateral relationship, and the two sides agreed to work together to promote shared values and an international system that would internalize those principles. This culminated in the 2001 declaration of a “decade of Japan-EU cooperation.” For the most part, however, symbolism prevailed over substance and the relationship remained one of promise and potential.²

This would change as Tokyo’s calculus shifted. The first factor shaping Japanese thinking was the South Korean government’s aggressive pursuit of bilateral trade agreements with the United States and Europe. Seoul’s determination to transform the economic landscape focused Tokyo’s attention: Japanese businesses “expressed concern that the very comprehensive EU-Korea free trade agreement represented a direct threat to their hard-won European markets and they were loath to give that up.”³ Japan’s External Trade Organization (JETRO) pointedly contrasted South Korean bilateral/regional trade deals that accounted for 35.6% of its trade with Japan’s 11 agreements, which accounted for just 16% of its trade.⁴ The very day after South Korea and the EU began negotiations on their trade agreement, Keidanren called for a Japan-EU economic partnership agreement to protect the status of Japanese businesses in Europe. This yielded a “golden moment” at which Japan was ready to create its own comprehensive trade deal with the EU.⁵

A second driver was the increasing urgency of the need for economic reform and a recognition that trade deals were a device to do so. Prime Minister Kan Naoto explained to business leaders at the November 2010 APEC CEO summit that “Many countries around the world are now ‘opening up,’ entering into economic partnership agreements one after the other and forming free trade areas. Frankly speaking, Japan is now getting left behind this global tide current. It is impossible to conceive of Japan’s prosperity except as walking down the path to growth together with the globe…”⁶ Kan and his successor Noda Yasuhiko saw the Trans-Pacific Partnership (TPP)—still in early stages of discussion—as a key element in their efforts to spur growth and the modernization of Japan’s economy. 

Third, and driving home the need for action, was the “triple catastrophe” of March 11, 2011. The earthquake, tsunami, and nuclear accident underscored the vulnerability of domestic supply chains with Japan. Even though Tohoku was generally considered to be on the periphery of the Japanese industrial juggernaut, the region’s devastation still triggered significant production disruptions. Japan’s business and political leadership were alerted to the need to diversify supply chains to insulate businesses from natural disasters. Moreover, the rebuilding that followed that tragedy drove home the need for “a renewed understanding of the importance of building and strengthening international connections which could aid with recovery through, for example, international trade agreements.”⁷

Two months later, in May, Japan and the EU held their 20th summit. There, the heads of state took note of the devastating events of March 11 and agreed that it, and other events, obliged them to commence negotiations on “a deep and comprehensive Free Trade Agreement (FTA)/Economic Partnership Agreement (EPA), addressing all issues of shared interest to both sides including tariffs, non-tariff measures, services, investment, Intellectual Property Rights, competition and public procurement.” A scoping exercise ensued.⁸

2013-2017: Abe returns to power and rule-making takes precedence

The Japanese government’s fumbling response to March 11 confirmed to voters that their experiment with the Democratic Party of Japan (DPJ) was a mistake and returned the Liberal Democratic Party (LDP) and Abe Shinzo to power in December 2012. Abe made “Japan’s return” the cornerstone of his administration and the focal point of all his efforts, a process that demanded Japan’s economic revitalization if it was to have any credibility.⁹ For Abe, like his DPJ predecessors, trade agreements were key tools in that project. Moreover, those deals would transform Japan from a “rule taker” to a “rule maker,” a nation that shaped the international environment rather than a passive actor that merely responded to it. As Abe explained in the March 2013 press conference announcing his intention to enter TPP negotiations, “creating new rules in the Asia-Pacific region with [TPP] countries is not only in Japan’s national interests, but also certain to bring prosperity to the world. …. The new economic order which will be created with the two major economic powers, Japan and the United States, would not remain the ‘TPP only’ rules. It should serve as a basis for rule-making beyond the TPP … Losing this opportunity would simply leave Japan out from the rule-making in the world. Future historians will no doubt see that ‘the TPP was the opening of the Asia-Pacific Century.’ Japan has to be at the heart of the Asia Pacific Century. I believe that participation in the negotiations for the TPP will be a provident masterstroke.”¹⁰ Also consistent with that logic was the announcement a week later that formal negotiations would begin on the Japan-EU economic partnership agreement.

The desire to be a “rule maker” had assumed new urgency as China became more aggressive in the pursuit of its preferred version of regional and global order, pushing its own trade agreements and arrangements, the promotion of Chinese officials to leading positions in international organizations and, when stymied, creating its own institutions. Supreme leader Xi Jinping offered several initiatives to promote connectivity with neighboring counties. In September 2013, during a visit to Kazakhstan, he announced the Belt and Road Initiative (BRI), his signature foreign policy effort. The following month in Jakarta, he called for the creation of an Asian Infrastructure Investment Bank, which was formally launched a year later. Both aimed at consolidating Beijing’s position within regional economic networks and with hundreds of billions of dollars in aid and investment to hand out, the prospect of a China-centered economic sphere seemed real.

Unfortunately for Abe, US interest in TPP waned. President Barack Obama failed to secure US ratification of the treaty before his term ended and both candidates in the 2016 US presidential contest, Republican Donald Trump and Democrat Hillary Clinton, declared their opposition to the deal. In one of his first acts as president, Trump formally pulled the US out of the agreement, the first in what would be four years of assaults on the established trade and economic order. Trump had hostility not only to the international trade architecture, but to its guiding principles as well even though they had been articulated, developed, and supported by every US administration since the end of World War II. Abe was forced to rework his international economic policy, adjusting to the loss of a partner in the fight to promote shared values and interests; shifting US trade politics “upended the goals of trade policy under Abenomics.”¹¹

In this new environment, Japan worked to compensate for the US abdication of leadership. Abe refused to accept US withdrawal from the TPP as the deal’s death knell and instead revived it as the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP, sometimes called the TPP-11) without US participation. CPTPP went into effect on Dec. 30, 2018 for the initial six ratifying countries and more economies have been trying to join (of which, more below). Tokyo also pushed ahead with the Regional Comprehensive Economic Partnership (RCEP) agreement, a lower-standard trade deal that nevertheless offered considerable advantages to its 15 members. It is the world’s largest trade bloc, accounting for about 30% of global population and 30% of global GDP. Significantly, it includes Japan and China, balancing two governments with distinctive views of order and ambitions to lead it.

2017-2020: The rise of Europe in Japanese calculations

But even as Japan pursued those trade deals, Tokyo needed another powerful government to join it in promoting high-quality standards, and fill the gap in influence, status, and standing created by the United States’ abdication of its former role. Europe was that partner, and the Japan-EU Economic Partnership Agreement became the new gold standard. Washington’s rejection of TPP prompted Japan to redouble efforts toward its conclusion. The two sides reached an agreement in principle at the 24th Japan-EU summit in July 2017 and finalized negotiations that year, “striking a blow against a feared increase in nationalistic protection world trade.”¹² Abe and Jean-Claude Juncker, his EU counterpart, declared that “finalization of the negotiations demonstrates to the world the firm political will of Japan and the EU to keep the flag of free trade waving high and powerfully advance free-trade. The EU-Japan EPA will be the model of high standard free open and fair trade and investment rules in the 21st-century.”¹³ As Tsuruoka Michito explained, the EU-Japan deal showed that Tokyo and Brussels were prepared to lead in the US absence.¹⁴

The EPA served another purpose as Japanese officials assessed US behavior: It was, said one Japanese economic official, “a breakwater” against US pressure. Trump’s focus on bilateral trade figures and his seeming willingness to bargain with every asset in the US diplomatic toolkit meant that Tokyo had to be ready for unprecedented negotiations that could even threaten the alliance with the US. So if, for example, Washington pushed for big cuts on tariffs on dairy products, beef, and pork in talks with Tokyo, Japan could use the terms of the EU deal to refuse additional concessions. The CPTPP provides another, similar, card.¹⁵

The resulting agreement marked “a new era” in the words of Abe and created one of the world’s largest free and advanced economic zones, encompassing some 640 million people, approximately 30% of world GDP and 40% of world trade. While it was expected to boost Japanese GDP by about 1%, or 5 trillion yen, create nearly 300,000 jobs, and be “a new engine for Abenomics,”¹⁶ those numbers may not capture its real significance.

For one commentator, the EPA is “the most important bilateral trade agreement ever concluded.”¹⁷ That reflected its scope—goods, services, public procurement, regulatory cooperation, and the modernization of trade rules, intellectual property rights, corporate governance, and sustainable development—as well as its ambition. When it entered into force, more than 90% of EU exports became duty-free, a number that will rise to 99% of EU tariff lines and 97% of Japanese tariff lines when it is fully implemented. The EPA will ultimately remove 100% of tariffs on industrial products in both directions and 85% of agricultural products going to Japan. It facilitates trade in cross-border services and movement of people for business purposes. Significantly, it addresses many of the nontariff barriers that businesses trying to crack the Japanese market have long complained about.

Its greatest significance is normative, however. It demonstrated that Japan and the EU were “flag bearers of free trade”¹⁸ and signaled their determination to work together and with like-minded countries to promote shared values like democracy and the rule of law. Kodama Kazuo, Japan’s ambassador to the EU, highlighted the importance of the name—an “economic partnership agreement” and not a mere “free trade agreement”—which shows that their deal “is about more than quotas and tariffs, or millions and billions. It is about values, principles, and fairness. It makes sure that our principles in areas such as labor, safety, climate, and consumer protection are the global gold standard. This only happens when you work with the most natural of partners, separated by thousands of kilometers but united in friendship and values.”¹⁹

This cooperation, Kodama argued, aims not merely to promote economic interests but is of strategic value. The Mainichi agreed, noting in an editorial that the deal sent a message to both the United States and China, both of which it viewed as threatening the postwar world order.²⁰ Endo Ken, professor of international politics at Hokkaido University, argued that the Japan-EU partnership had the capacity to check the seemingly inevitable collapse of liberal democracies and the order they created under the forces of populism, inequality, and illiberalism. “We should not underestimate the potential of this partnership,” he wrote. “We have to fight together against moves that unilaterally erode a variety of global norms and practices in such areas as human rights, rule of law, labor and environmental standards. Europe is one of few partners capable of shouldering this task.”²¹

When the EPA went into effect, The Mainichi continued to editorialize in support of the deal, arguing that it would boost growth, provide a bulwark against protectionist pressures originating in Washington as the US and Japan began their own bilateral trade talks, and promote “worldwide stability” as the U.S-China trade war intensified.²²

From Concepts to Connections

Seven months after the EPA went into effect, Japan and the EU signed a Partnership on Sustainable Connectivity and Quality Infrastructure.²³ This agreement covers sectors from digital industries to transport and aimed to transform development assistance by promoting transparency and sustainability as donor nations sought to plug Asia’s $6 trillion infrastructure investment gap. It covers four basic fields: diversified trade and travel routes (infrastructure, traditionally defined); energy platforms; digital, in particular, increased access to digital services; and programs for human exchange, such as education, research, culture and tourism.²⁴

The partnership was animated by the same concerns that spurred the EPA. Tokyo and Brussels had their own development projects—Japan’s partnership for high-quality infrastructure and the EU’s Europe-Asia Connectivity Strategy—but they adopted a bilateral effort to provide additional momentum and heft. It is intended to shore up a liberal world order that appears increasingly rickety with the rise of populism and nationalism, a trajectory amplified by the “America First” logic of the US under Donald Trump. China’s rise was another factor; the partnership was “clearly crafted with Beijing’s Belt and Road Initiative in mind,” to provide an alternative source of financing for recipient countries that would not impose such crushing debt burdens.²⁵ Intriguingly, the partnership is typically analytically coupled with the Japan-EU Strategic Partnership Agreement, rather than the EPA, implying that it should be seen through a strategic, rather than economic, lens. The challenge will be turning intentions into concrete projects: A Foreign Ministry fact sheet detailed a series of efforts around the world where meat is being put on the proverbial bones, from cooperation on port projects in the South Pacific to road rehabilitation projects in Burkina Faso.²⁶

In December 2022, representatives from Japan and the EU met again to assess opportunities, and identified existing and potential projects for cooperation in the Indo-Pacific, Africa, Western Balkans, Eastern Partnership countries, and Central Asia which were to be further explored.²⁷ In March 2023, the European Investment Bank (EIB) and the Japan International Cooperation Agency (JICA), which the day before the Partnership was agreed signed a memorandum of understanding to facilitate cooperation between the EU and Japan, renewed their arrangement.

Preserving a Partner after Brexit: Engaging the UK

While every country—including Britain—was stunned by the results of the June 23, 2016, referendum that called for the United Kingdom’s exit from the European Union (Brexit), none felt the jolt more acutely than did Japan. Withdrawal from the EU undercut Japanese business strategies that identified the UK as a gateway to Europe. It reduced British influence internationally—within Europe and globally, as London could use the EU as a megaphone for its positions. While British politicians countered such fears with talk of “Global Britain,”²⁸ few expected London to maintain its status and influence in the aftermath of the referendum. For Japan, Brexit marginalized a vital partner and forced a reassessment of a strategy that prioritized London in its foreign policy. As Tsuruoka Michita explained, “The UK has long been Japan’s preferred gateway to the EU, not just in terms of trade and investment but also in political and security terms. Tokyo has relied on London in its overall approach to the EU, expecting the UK to advocate, within the EU, free trade and engagement in Asia. Brexit will make it impossible for Japan to keep relying on the UK as the gateway to the EU per se….”²⁹

The arc of the Japan-UK economic relationship in the postwar era mirrors that of Japan’s relations with Europe. Once the two economies rebuilt from the rubble of World War II, trade tensions emerged and rose to dominate relations until the late 1980s. Corporate Japan’s determination to reduce costs (and ease political tensions) resulted in billions of dollars in investment in Britain. In 2014, Japanese investment had created about 140,000 jobs in the UK and had peaked at $49.9 billion in 2016.³⁰ Japan and the UK ranked sixth and fifth, respectively, for inward direct investment in 2018.³¹ Two-way trade also continued to grow, reaching £31.6 billion by 2019.

Japanese investment in the UK reflected a particular economic logic. About half of Japanese direct investment intended for the EU in 2015 flowed to the UK. And as the Japanese government argued, not only was much of that investment predicated on access to the European market, but a number of Japanese businesses had been “invited” by the British government for precisely that reason.³² Brexit was by this logic, not only a problem, but a betrayal.

The Japanese government formed a task force to assess the impact of the vote almost immediately after the referendum. After its third meeting, in September 2016, it issued a statement that warned both its British counterpart and the EU about the need to avoid economic uncertainty, and the hope that both would “maintain the current business environment or alleviate the impacts of any radical changes so as to remain an attractive destination for doing business.”³³ By then, Japan was already grappling with one impact of Brexit: an appreciating yen as investors searched for safe havens amidst international confusion, a blow to Japanese exports that rattled the already wheezy Abenomics project. Economists feared a recession could follow.³⁴

The task force’s warning would go unheeded. Brexit barreled ahead without resolution, and Japan Inc was having regrets. In 2018, 60% of Japanese firms in the United Kingdom surveyed said they expected Brexit to have a negative impact on their business. By 2019, companies were canceling planned expansions and in some cases were shutting down operations in Britain. According to Takeshita Seijiro, “trust has evaporated” between Japanese companies and the UK government.³⁵

As the date approached for the UK-EU cooperation agreement to go into effect (January 1, 2021), Tokyo and London scrambled to reach their own deal. Failure to agree meant that the terms of trade would revert to those set by the World Trade Organization, which would be considerably less beneficial than existing arrangements or the terms set by the Japan-EU EPA. That proved to be an effective incentive. After just four months, the two governments concluded a Comprehensive Economic Partnership Agreement (CEPA) in October 2020, that went into effect on January 1, 2021. It is the UK’s largest bilateral agreement post-Brexit, and was described as “a milestone for a new era in Japan-UK relations” and “gives a blueprint for what future comprehensive trade deals with advanced economies could look like.”³⁶

The deal has been called “historic” by the UK government,³⁷ but most observers see the deal’s main value as political, rather than economic. It was touted as having the potential to increase trade by more than £15 billion, with particular applause for “cutting-edge digital & data provisions that go far beyond the EU-Japan deal” as well as “strong tariff reductions on key agricultural products,” “reduced tariffs on parts coming from Japan, streamlined regulatory procedures and greater legal certainty” for major investors and “cheaper, high-quality Japanese goods—from udon noodles to Bluefin tuna and Kobe beef.”³⁸ In fact, however, early analyses indicate that the economic benefits of the agreement were “oversold.”³⁹

For Japan, the real value of the CEPA lay in the continuity it offered. Japanese businesses operating in the UK needed a smooth transition when the EU-UK agreement went into effect.⁴⁰ As the Japanese embassy in London laconically noted, the deal “provides stability for Japanese and British companies to continue their business and trading activities with each other after Brexit.”⁴¹ The agreement also consolidated the Japan-UK relationship on a political level, showing the world that London can get business done and helped to build a strategic relationship with a potentially valuable partner that goes beyond trade. 

It is helpful too to view the Japan-UK CEPA as preparation for Britain’s entry into the CPTPP. Tokyo retains hopes that the US will reconsider membership in the deal, but in the absence of progress—and it remains extremely unlikely that there will be any movement for the foreseeable future—the UK is an important substitute. It is committed to a rules-based, free and fair trade system. British governments view the CPTPP as a pillar of the country’s pivot to the Pacific, the economic equivalent of the Australia-UK-US (AUKUS) enhanced strategic partnership.

So, on February 1, 2021, UK International Trade Secretary Liz Truss issued the formal request to join CPTPP, a move that was welcomed by Japanese Economy Minister Nishimura Yasutoshi, who called Britain a partner who shared Japan’s values. Japan, which headed the working group for accessions to the trade agreement, announced in June that CPTPP members had agreed to go ahead with the UK bid. Formal negotiations started in September of that year, and moved to the “market access” phase, the second and final phase of talks, in February 2023. While UK officials had hoped to conclude negotiations by the end of 2022—a deadline that was not met—the British government conceded that predictions were difficult since the UK was the first country to try to join CPTPP and no one could anticipate how the process would operate.⁴²

2020-2023: Taking Stock and Catching Its Breath

In its most basic formulation, Japan has had a two-prong economic strategy since Abe Shinzo returned as prime minister. First, Abe sought to rejuvenate the economy to give the country a boost both real and psychological as he sought to reclaim Japan’s place among the first tier of nations. Second, he pursued partnerships with like-minded countries to backstop the principles, rules, and institutions of the existing world order to protect Japanese interests and Tokyo’s status within that system. That strategy was buffeted by external events: the election of Donald Trump as US president, the subsequent US withdrawal from the TPP and the UK vote to leave the European Union. Tokyo did well to respond to and neutralize the impact of each. Abe became the “Trump whisperer,” managing relations with the mercurial president better than any other world leader. He resurrected the TPP after US withdrawal, and while Tokyo clings to the hope that Washington will return, its successor the CPTPP remains popular with a list of applicants, testimony to its continuing relevance and status as the gold standard for Indo-Pacific trade deals. Japan has concluded trade agreements with the European Union and the UK and maintains privileged relations with each.

In his tenure as prime minister, Suga Yoshihide essentially oversaw the completion of those deals and eyed their implementation. The contours and content of Japanese foreign policy remain unchanged and unchallenged. His successor Kishida is similarly taking stock, while dealing with another systemic shock: Russia’s invasion of Ukraine. For the most part, Kishida’s administration has continued those trajectories, shoring up international support for a contested international order, once-hypothetical threats made more immediate by Putin’s land grab. To the degree that there is a deviation, it is, as Gilbert Rozman notes in his accompanying analysis, the abandonment of dreams of rapprochement of Russia and the hardening of lines toward Moscow. That reckoning with reality followed the invasion of Ukraine and has helped Kishida make the case for pushback against China, the other revisionist “great power.” Kishida repeats at every opportunity his belief that “security is indivisible” to rally countries behind efforts to support and sustain the prevailing Indo-Pacific order.⁴³ That focus animates his term as chair of the G7 in 2023. Having experienced Chinese efforts to use control of vital materials such as rare earths to prevail in political disputes, the subject of China’s economic coercion is high on Japan’s agenda for the group. According to Minister for Economy, Trade and Industry Nishimura Yasutoshi, Chinese actions to use economic pressure to get its way represent a “clear and present danger” for economies around the world. “We expect effective responses to economic coercion will be a major item at this year’s G7 summit,” he added.⁴⁴

Despite the Shocks, Pillars Remain Steady 

Kishida inherited a foreign policy that has proven remarkably resilient, despite serious and foundational shocks. While much of this approach was laid out by Abe, parts of that policy long predated Abe. As Rozman notes, Japan has since the Cold War supported European efforts to create a third center of power that included countries of shared values cooperating on security issues.⁴⁵ Interest may have waned during the first decade of the post-Cold War era, but the rise of China reinvigorated that project as Tokyo sought additional support to turn back the systemic challenge posed by Beijing. The desire to forge closer relations with Europe assumed new urgency during the Trump years, when the US commitment to multilateralism and the rules-based order that Japan relied upon was called into question. Tsuruoka explained that “In light of Abe’s ‘diplomacy through a panoramic perspective of the globe [chikyuugi wo fukan suru gaikou]’ and his emphasis on shared universal values and commitment to maintain and foster the rules-based international order, cooperation with Europe is a natural choice.”⁴⁶ The Japan-EU CEPA was one expression of this consensus. For Tokyo, the agreement is a vital mechanism for setting next-generation standards in international trade and investment.⁴⁷

Brexit altered calculations in Tokyo. London would no longer serve as the “gateway” to Europe for business nor an advocate in Europe for US views, a role assumed to be part of the US-UK “special relationship.” (The transitive property of alliances presumes that US-Japan alignment on China was mirrored in US-UK relations, and thus British governments would back the harder line against Beijing advocated by Washington and Tokyo. While the Cameron government challenged the wisdom of that assumption, that was the least of Tokyo’s concerns with that administration.) Japan and the UK quickly moved to shore up the economic foundations of their relationship to ensure that Japanese businesses would not be disadvantaged by the new terms of trade created by the EU-UK trade framework. The speed with which that was accomplished and London’s desire to use its reclaimed “sovereignty” to reassert its global presence and role helped refocus attention on British potential as a partner for Japan. As a result, “Japan increasingly sees the UK as a key defense and trade ally in its pushback against China in the Indo-Pacific” and Tokyo seems poised to become one of Britain’s “foremost regional partners.”⁴⁸

That potential is evident in Britain’s pursuit, with Japanese support, of membership in the CPTPP. London is expected to be committed to a rules-based order, along with democracy and open markets, and will support Japanese positions in the struggle to forge international rules and standards. British membership expands the geographic scope of the agreement, opening the door to other countries in Europe that would share the preference for the current international order. At the end of March 2023 the announcement was made that Great Britain would join the CPTPP.

Kishida looks ahead

As Kishida contemplates his international economic agenda in the spring of 2023, he has three concerns. The first is stewardship of the G7. As the 2023 chair of the club of advanced industrialized countries, Kishida must maintain the group’s unity and resolve in standing up to Russia after its invasion of Ukraine and to other revisionist powers—chiefly but not exclusively China—who want to rewrite the rules of international order. The prime minister is well aware of the domestic political advantages that follow if he succeeds in those efforts. While Japan is not scheduled to hold an election until October 2025, Kishida anticipates a boost from a successful G7 summit—Japanese prime ministers, like most leaders, typically gain popularity after foreign policy accomplishments—prompting speculation about an early election to exploit those gains and secure his re-election as party president and prime minister in the Liberal Democratic Party ballot in the fall.

Central to both the G7 agenda and Japanese concerns more generally is economic security. Japanese administrations have been focused on this issue for several years, restructuring the national security bureaucracy to better address this challenge and passing the Economic Security Promotion Act in 2022.⁴⁹  That bill has four pillars: supply chain resilience, protecting critical infrastructure, promoting development of critical technologies, and protecting those technologies, in particular through secret patents. Japan has said that promoting supply chain resilience and protecting against economic coercion will be core elements of its G7 effort.⁵⁰ These are priority concerns for Europe too and will promote coordination between Tokyo and Brussels (as well as other European and G7 capitals).⁵¹

China continues to pose something of a conundrum for Japan. Kishida identifies China as a threat and he is eager to ensure that European governments recognize and respond to the danger it poses. That message is reflected in his regular reminders that “security is indivisible” and that Europe cannot ignore developments in the Indo-Pacific. At the same time, Kishida does not want to close the door on cooperation with China either in pursuit of political objectives or in ways that would disadvantage Japanese businesses that rely on the Chinese market. His thinking echoes that of Europe: While Japan and Europe are worried about Chinese intentions, neither has adopted as hard a line as that of the United States.

This is the second core element of Kishida’s economic policy toward Europe. He aims to work with Europe to blunt the sharper edges of US policy toward China and maintain space for diplomatic maneuver with Beijing.⁵² While all three view Beijing as a systemic rival and competitor, there remains room for divergence in the specific policies that the three adopt to constrain China’s behavior. While all three worry about Beijing’s readiness to emulate Russia to deal with its own territorial dispute with Taiwan, they have different views when it comes to economic engagement. Neither Japan nor Europe is ready to go as far as the US in decoupling from the Chinese market. This convergence of views is also evident in a shared reluctance in the fall of 2022 to join the US and cut China’s access to advanced semiconductors and related equipment. Japan and the Netherlands were reported to have come around to the US position, but it is unclear what compromises were made to align the three.⁵³

Similarly, at the second meeting of the Japan-EU High-Level Economic Dialogue (HLED) the EU invited Japan to join the multi-party interim appeal arbitration arrangement (MPIA), a stopgap arrangement launched in April 2020 that is being used until lasting reform of the World Trade Organization dispute settlement has been agreed. The US has blocked all appointments to the Appellate Body, which hears appeals of WTO panel rulings, resulting in the virtual paralysis—if not dismembering—of the organization’s dispute resolution mechanism. On March 10, 2023 the Japanese Cabinet approved Japan’s participation in the MPIA, another example of Tokyo’s inclination to align with Brussels to shore up the international economic order in the face of US objections.⁵⁴ The HLED, “a specific platform for strategic discussions,” was endorsed by the 25th EU-Japan Summit in July 2018, and first convened a few months later. The second meeting, in October 2022, “confirmed EU-Japanese strategic alignment on key economic and geopolitical challenges… and “the two sides agreed to maintain close cooperation in the areas of securing a global level-playing field and economic security.”⁵⁵

Japan and the EU also work together to oppose the more nationalist elements of US policy such as the Inflation Reduction Act. Both have been offended by provisions of the legislation that set national content restrictions for eligibility for subsidies—for green technologies in general but especially for electric vehicles—that would disadvantage their companies.⁵⁶ Both have struck deals with the US to loosen those restrictions so their businesses can participate in ventures and not lose access to those government support. That complaints were heard from both Europe and Japan (and South Korea) helped push Washington to amend the rules.⁵⁷

Kishida’s third major concern in his international economic agenda is his “New Capitalism.” Kishida touted this idea—largely undefined, but seemingly focused on reducing wealth and social inequality and promoting innovation—during his campaign for LDP president and he continues to use the phrase as prime minister. Despite the gauziness of the concept, some elements have emerged—digitalization, economic security, and green technologies—and they offer opportunities for cooperation since they are EU priorities as well. At the May 2022 EU-Japan Summit, the two governments launched the EU-Japan Digital Partnership, emphasized their “determination to strengthen cooperation in promoting economic security,” and promised “to implement with determination the EU-Japan Green Alliance,” inaugurated the year before.⁵⁸ That is three for three. One former European diplomat characterized this common ground, “which includes Europe’s two most fundamental long-term priorities— digitalization and the green transition, “as heralding the dawn of ‘the golden era of EU-Japan relations.’”⁵⁹

While that judgment is premature, such optimism is needed if the full potential of the Japan-EU relationship is to be realized. The foundation has been laid, and current dynamics are reinforcing the partnership. Some of the credit must go to Abe for both recognizing the need to revitalize the relationship and actually pursuing it. It will take leadership and energy in Tokyo and Brussels to ensure that the current trajectory continues, however, and the same forces that are pushing the two together now could easily drive them apart.