Geoeconomic Competition
Welcome to "Geoeconomic Competition", a thought-provoking podcast diving deep into the intricacies of geoeconomics. In each episode, Francesca Ghiretti engages with other economic security and geoeconomics experts to navigate the intricate and often hidden manoeuvres of economic security and of global economic power plays. From the growing set of policies to the changes in globalisation, we explore how countries leverage their economic strengths, engage in trade wars, and form strategic alliances to gain geopolitical advantages.
Logo by Daniele Saccani
Geoeconomic Competition
Japan's Economic Security and suggestions for Italy's G7 Presidency with Kazuto Suzuki
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Japan has been one of the first countries to adopt a policy for economy security, the Economic Security Promotion Act, and to appoint a Minister for Economic Security. In this episode, I have the pleasure to chat with Kazuto Suzuki, Director & Group Head, Economic Security at the Institute of Geoeconomics in Tokyo. This episode's content spans from Japan's own experience with economic security, and the country's ability to use economic security to promote the flourishing of a semiconductor industry, to the possibility for collaboration with the EU to safeguard a rules-based international system. Finally, it touches upon the G7; the attention to economic security that Japan's Presidency paid in 2023 and where the Italian Presidency in 2024 could consolidate and strengthen the G7 economic security agenda.
Welcome to Geoeconomic Competition. I am Francesca Giretti, your host, and in every episode I will engage with other experts to dive into the intricacies of geoeconomics. In this episode, I have the pleasure to host Kazuto Suzuki, Director and Grouphead Economic Security at the Institute of Geoeconomics in Tokyo. Welcome, Suzuki San.
SPEAKER_00Nice to see you.
SPEAKER_01Nice to see you too. We spoke a few months ago, and when we were speaking, we were covering Japan's de-risking in comparison to the EU and the US approach to de-risking. And at the time you mentioned something that I found extremely interesting that you've mentioned mentioned again in the months afterwards, which is that Japan invented de-risking, or at least you know, came first to de-risking. Could you elaborate on this concept and tell us a little bit more?
SPEAKER_00Right. So starting with the definition of de-risking, de-risking is uh is different from the decoupling, and uh decoupling is to shut down the trade and the economic relationship with other countries and try to decouple uh where you are coupled with the other um economic entities. So uh instead of decoupling, uh de-risking is that you maintain the coupling, which means that you continue to have the uh trade and investment and economic relationship with other entities, but try to reduce the risks that may have uh some strategic implications. So, for example, you know, uh semiconductor. Semiconductor is a strategic commodity which would be used for the um you know variety of goods, but uh it is uh most importantly using for the computers that is used for the AI, the artificial intelligence, and the future you know uh programs such as the you know automated uh driving cars or the uh electric cars. So these um strategic items you need to uh you need to avoid to too much dependence on the other countries because if the other countries change their laws or stop their regulations or change their regulations to stop exporting uh such uh items or um uh minerals or or material or anything that you are independence of the uh other country, then that will be the significant risks for your economic security or economic stability. So the de-risking is the concept that is to avoid the too much dependence and to um to make sure that the if something happens and uh certain items are no longer being exported from other countries, but still you'll be able to have alternatives such as uh you know the other diversification of supply chain or having a stockpile. You know, these are the other means to avoid the uh sudden change of regulations or the uh laws. So um Japan, even though it didn't use the word de-risking, um Japan is not really good at uh capturing these concepts. But uh the concept of the Economic Security Promotion Act or ESPA, which was established in uh May 2022, which was uh way before the uh President von der Leyen has announced uh in her speech about the de-risking, which was the uh March 2023. So so Japan, I I wouldn't say invented, but Japan has already implemented the law which has based on the concept of the de-risking, which means we are not going to decouple the trade relationship with other countries, including China or Russia, but try to avoid the uh too much dependence. So, for example, in 2010, Japan has depended um the rare earth mineral uh to China, and 90% of the rare earth mineral to Japan came from China, so that was uh over dependence, and the rare earth mineral was uh uh quite a strategic item because uh it is the essential uh minerals for making a hybrid car. And perhaps when you know, if you know that um hybrid car when it comes to a hybrid car, it's Toyota, Honda, you know, these companies are the the the biggest uh producer of the hybrid cars. So the lack of access to the rare mineral from China was a big damage for the Japanese industry. So that was a risk, and the de-risking is to reduce the dependency on China on the rare mineral. So currently, Japan Japan depends 60% on of the rare earth mineral to China, but the 40% from you know comes from elsewhere. So yes, 60% is still big, but we do have alternative suppliers so that we'll be able to get the rare mineral if China stops exporting again.
SPEAKER_01Yes, indeed. I mean 60% is still high, but it's better than 90%, correct? Um but you also are one of the very few, uh, I don't want to say the only, but definitely one of the very few countries that has a minister for economic security. How important it is to have such a figure in the development of an economic security agenda or in the development that you've seen in the economic security agenda?
SPEAKER_00Well, economic security covers many fields. For example, you know, it is the uh about it's not only about the semiconductor or rare earth mineral, but it is also about the let's say the medicines or the you know the pharmaceutical industry. That is the that is the responsibility for the Ministry of Health, or how to maintain the um AI, telecommunication, 5G, you know, these are the ministry of telecommunications. So these are not uh these are uh uh responsible, you know, responsible ministries are scattered around in the different uh ministries. So each ministry has different um policies, and uh, you know, they are doing their own economic security policy in the context of the telecommunication industry or um in the context of the pharmaceutical industry, and that makes it uh difficult to have the coherent national program. So you need to have a coordinator of the economic security policy, which is eventually needs to do it as the as the security for the stability of the economic order in your country. So we need to build up our resilience in the pharmaceutical, telecommunication, or you know, many other things. And we need to have the coordinator to organize and uh having a coherent strategy, those which those of which are implemented by the minister for health, minister for telecommunication, minister for transportation, you know. So the minister for the economic security is the one to coordinate and planning and coordinating the national security strategy. And that's the that's the role of the minister for economic security. And I think it's necessary because um, you know, if you let all the ministers to do their own businesses, then you won't get the sort of a assurance of having the uh coherent strategy.
SPEAKER_01It's basically having a strategic approach to economic security rather than a sectoral one, correct?
SPEAKER_00Exactly. Exactly.
SPEAKER_01And one could even say, you know, in a reality, and here I'm bridging I'm creating a bridge to the next question, in a reality, such as the European Union, where on top of the different ministries you have the different member states, it could be even more important to have a coordination point for economic security because it brings together, as you said, different expertise, different competencies, um, but also, you know, different concepts, national security, economic prosperity, resilience. So you really do need a sort of a point of contact at the very least, a coordination point that can think about these things strategically. And this leads me to my next question, which is um you've recently wrote a piece, if I'm not mistaken, about the EU being shaken by um geoeconomic changes. And yes, and in the very last part of your piece, you talk about cooperation between the EU and Japan. So I was wondering if you could just elaborate a little bit on that, tell us a little bit more on where the EU and Japan can collaborate in the economic security agenda.
SPEAKER_00Right. Um, so first of all, I think EU's decision making is quite different from the Japanese decision making. Yes. Um it's it's uh because of the complexity of having a different member states, 27 member states, and a different uh, you know, uh Directorate General, and uh, you know, you have the 27, you know, the commissioners, and uh it's it's a very complicated decision making. And I think what holds EU together is the concepts and the norms and the ideas. So the EU is very good at making all these ideas and and setting up the directions. Of course, it's uh it's extremely difficult to have the you know the entirely coherent policies throughout the 27 member states, but even so, I think the the strength of the EU is to leave certain discretion at the national level, but you are aiming at the same objectives. So setting up the objective together and the common objective is an important one. And I think the concept of de-risking is the sort of abstract enough to for the every country's member states to uh to accept as the sort of an idea, but um the way in which that they implement their policies, uh it's um it's up to the member states. So um I do understand that this complexity and uh this is not an easy job, but still I think this creation creating the concept and and uh you know setting up the the uh the normative uh basis among the different actors and different member states is a powerful tool for the EU and that can be extended to the international community. So the reason why I put the you know the cooperation between EU and Japan is important is because that a the world is changing because of the uh the sort of a turbulence of the idea of the rule-based international order, the United States, China, and Russia to so to a large extent, and probably you can say Israel are now not being uh adhering the international rules. You know, they the the United States is playing a more protectionist approach if you look at the IRA, the Inflation Reduction Act, or if you look at the export control on the you know the semiconductor against China, you know, these are I wouldn't say clearly, but it's very strongly um suspected as the as the violation of the WTO rules. China, on the other hand, you know, the um you know stopping export of the uh rare earth mineral or stopping import from uh Australia, the wine and the and the coal and everything, or you know, having all these uh you know uh coercive measures, these are not really uh compliance in compliance with the WTO rules. So United States, China are not really respecting the international rules, and they are using their strengths in the economy, the the size of market and size of economy. They are the one who is disrupting the rule-based international order and um and creating some sort of a new international order based on the power. And uh, of course, the Russia has used the blunt power, the military power to invade Ukraine. So these are the sort of a situation that we are facing that the there are certain countries which are not respecting the international order or in rule-based international order. So I think we need to have the alliance of the countries that respects the rules and try to promote the rule-based international order to make sure that we this is the way in which that the world order should be based on. And uh this rule-based international order, I mean, the the EU has used and the and the uh uh you know, EU has benefited from the rule-based international order, so has Japan, so has Australia, so has Canada. So there are a number of countries which are not powerful enough to use their own economy or military power to change the international order, but the you know, those are those who are benefited from the rule-based international order and willing to protect them. So I think Japan and the EU among those countries is the most the largest in terms of the economy, and very much capable of creating the situation to resist the power-based international order and to set up the rule-based international order or maintain the rule-based international order. So I think uh that in that way, Japan and EU collaboration is extremely important to set uh to have the certain you know uh it it the collaboration between Japan and EU will define what kind of order that we are going to live in. Are we going to live in an you know the 18th, 19th century order, or are we going to live in the rule-based 21st century order? So in order to you know avoid going back to the sort of a the logic of Django or you know the rule of power, I think it's uh it's that it's time that we clearly recognize that there is a two different understanding about the international rules and two different camps in the international rules. And I think Japan and the EU are in certainly on the same uh same camp. And I think we need to cooperate and and work together to maintain the rule-based international order.
SPEAKER_01And I guess this goes a little bit beyond just economic security. It's clearly something that touches upon different sectors and a set of spheres. But, you know, thinking about economic security, the fact that it is a relatively new concept, at least in the last few years, uh, that is perhaps, I don't want to say even more important, but definitely requires more attention because it is much easier to use this concept in uh to force bilateral changes or unilateral changes, right? So um, one example of collaboration between the EU and Japan, who are close partners, if I'm not mistaken, they recently signed a protocol for cross-border data flow. So clearly the relationship keeps growing and keeps strengthening. But now let's go to the next level. So we talked about Japan, we talked about Japan and the European Union. Let's bring it to G7 level. Um, 2023, Japan had the presidency of the G7, it made economic security a very important part of that presidency and of that agenda. Um, there were some very interesting initiatives, not just the statement on economic resilience and economic security, but also, for example, the coordination platform on economic coercion, right? Um, but now 2024, new presidency, Italy holds the presidency for this year. And I was just wondering, you know, been also having been so closely watching the presidency of Japan, what are your expectations in the cut in the field of economic security for the Italian presidency? What would you like to see in this year?
SPEAKER_00Right. So following on what I've said about the rule-based international order, the economic security is a concept that is pretty much an in between the power-based international order and the rule-based international order, because it's about the security, how to maintain the security of your economy and uh society and try to maintain your industry and uh sort of maintain the stability. So, yes, the world is getting tougher and uh you know it's it's getting rougher, so we need to have certain you know means and toolbox to make sure that you know these are not being affected on our society. So, what we need to do is to maintain the rule-based order, but try to separate some strategic uh items or strategic area which is which needs to be protected by the rule-based uh power-based international order. So, I think the concept of the small yard high fence is extremely important, and I think what G7 needs to do is to make sure that we do share the same concept of this small yard high fence and make sure that you know we are keeping the same size of the small yard as small enough because the United States is gradually expanding its yard and you know trying to control so many things. They started with the high-end chips, and now they are talking about the legacy chips, and probably they are talking about uh um let's say you know the uh batteries and uh probably biotechnologies, or you know, I it it is gradually expanding the uh uh the the the yard which is the uh which is subject to be controlled. So I think we need to make sure that um this is the you know the G7 is the is the heart of the rule-based international order, and to make sure that we share the same idea uh about the the the size of yard, and this platform is basically designed or should be designed for the the common understanding of what we should do and what is allowed to be uh what is allowed to do to protect our own economy, meanwhile the rest of the you know the outside of this uh small yard needs to be maintained uh based on the certain rules. Um maybe it's not uh WTO as it is, but um you know, some sort of a free trade rules. So I think what I uh As Japanese and following the um uh the G7 Hiroshima summit, um what I expect um uh for the presidency of Italy is to follow on this idea to you know the the agreement in Hiroshima was pretty much abstract. It's not really down on the concrete idea, it's not um it doesn't have a list of the items, it doesn't have the you know the the rules of engagement or something you know which is similar to this, you know, what it doesn't draw a line, you know, there's a lot of grey gray area. So what I expect Italy to do is to sharpen up this gray area to make sure that what is black and what is white, and I think um this sort of an exercise needs to be done in uh shelter processes and try to bring the everyone's interest and you know what uh what to do and then make sure that this platform will be the basis of the resilience but also the basis of the comp international competitiveness. I think the concept of economic security is not just to protect our own economy but to strengthen our economy. So, how to maintain our competitiveness, technical superiorities, and to make sure that you know the the G7 countries will have the strength to resist the impact from the power-based um order um posed by you know the challenges of the uh of China and uh and Russia and uh and and the others. So I think um what I expect for for Italian presidency is to to uh to draw more clear lines uh for for what we do and to set up the sort of a code of conduct of the economic security measures.
SPEAKER_01So now we have given the Italian presidency some homeworks. If anyone from the Italian presidency is listening, um please.
SPEAKER_00You can deliver that to uh to your home country.
SPEAKER_01Who knows, right? Let's hope so. Um I guess that you know the the difficult part and why G7 would be so important and having some guidelines, uh clarification, code of conduct uh conduct would be absolutely vital, is because we need to find a way to strengthen our economies without weakening each other, one another in the process, right? So that is why coordination at G7 is so fundamental. But let me come to the very last question, which is the question that I ask to all my guests. And it is if you consider the process that Japan has undergone in terms of um economic security, do you think that everything that has happened has made Japan more competitive, has increased Japanese competitiveness?
SPEAKER_00I think so. Um let's try and take a look about at uh what happened in the semiconductor industry in Japan. Japan's semiconductor industry has been the sort of a champion in the 1980s. You know, Japan had about 50% of the internet, you know, the global market share. And um, you know, Sony, umtachi, Toshiba, you know, you name it, you these these are the companies which becomes as a sort of a reign of the Japanese semiconductor industry. But you know, we have lost the touch uh after the collapse of uh economic bubble and uh and uh and um you know it's not just the collapse of bubble, but also um also there are many other uh uh structural problems uh among the Japanese companies. We we lost this the sort of uh the glory of um uh of being as a champion of the semiconductor, and now Japan has been, you know, yes, we do have uh a very competitive uh material industry such as JSR, Shinijetsu, and also we do have the a very competitive uh manufacturing equipment uh industry such as uh uh uh Tokyo Electrons or uh Horiba and many others. But the we are no longer producing the chip itself. So um Japanese government has decided to um you know to bring all these uh subsidies for uh inviting the TSMC. And uh two days ago, TSMC has announced uh well we already have the one factory in Kumamoto prefecture, and the TSMC has announced that they are going to build the second uh uh factory in uh in the same uh same venue. Also, it creates uh it becomes as a very strong stimulus for the uh suppliers and the you know the materials, all the you know uh semiconductor related industry. And uh also TSMC decided to have the joint research center, research RD center in Cuba to build this sort of a 3D integration of the semiconductor. So that's the kind of a new technology. So this will this will be the sort of a you know the new approach for uh for increasing the capacity of the semiconductor. And with that idea of building a new semiconductor, you know, investing on the the new research on the semiconductor, now we have the company called Rapidus, uh, which is uh aiming at to build the um beyond two nano um semiconductor. So this is the sort of a uh big leap from the sort of a declining uh semiconductor industry to be the world's top leaders of the semiconductor industry. And I think um, well, we are still yet to be seen how successful the Rapidus is going to be, but I think um Rapidus may have a chance uh because the demand for the high-end chip is increasing because of the increasing use of AI, the uh you know um the increasing uh demand for the supercomputer, for the quantum technology, and also you know, you are now having this uh automated vehicles or the electric vehicles. These are these requires of very sophisticated chips. So the demand for the chip is increasing, but it it can only be produced by the TSMC. So there is an imbalance between the supply and demand, and I think the there is a very strong expectation, not only in Japan, but also internationally, that Rapidus is going to be successful. So the Rapidus is now working with IBM, IMEC in Belgium, or ASML in Netherlands. So we do have uh uh uh international coalition for building this uh Rapidus as a successful company. So this is partially coming. Well, this is originally coming as the economic security measures, you know, having a uh semiconductor factory in Japan so that we can ensure the supply or it it is for the to for increasing the resilience of the supply chain and to make sure that we do have the uh uh manufacturing company in Japan so that uh we'll be able to provide this you know uh uh uh semiconductor chips, even if there is something happened in Taiwan. So, you know, be it as uh Stylong Contingency or earthquake or typhoon or whatever. So it is basically for the resilience. But this resilience has you know come after uh you know this this change of having the semiconductor factory in Japan is it it it becomes as a sort of a trigger for the sort of explosion of the uh um explosion of the you know semiconductor industry investment in Japan. So that's in a way to say economic security measures have made the well yet, but um have made uh well will make Japanese economy more competitive. So I think this is uh uh one of the episodes to to show that the economic security is not just simply you know trying to reduce the risks and uh you know diversification, etc. But it encourages more investment in the different uh uh uh different um um sectors and you know um it will have it will be the sort of a trigger for the uh for the investment.
SPEAKER_01Thank you so much for bringing an example of economic security policies that actually bring positive spillovers, not just spillovers, you know, positive outcomes into the economy that have to do with creating more um competitiveness, creating you know flourishing um industry and industrial sectors. So thank you so much for bringing this type of example because we always talk about protective measures, how to protect ourselves, right? So I'm very, very grateful that you brought this example. And in general, I'm very grateful that you took the time to talk to me today. We covered a lot, we you know, we spanned from Japan to new rules for engagement or new rules for uh you know economic security, uh, recommendations for the Italian presidency, keeping small yards small, and then using economic security to promote competitiveness. So again, thank you so much, Suzuki San. It has been a great uh conversation.
SPEAKER_00Yeah, well, always nice to see nice to talk to you, Francesca, and uh very happy to do it again.
SPEAKER_01Thank you.
SPEAKER_00Thank you.