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CED’s Policy Backgrounders provide timely insights on prominent business and economic policy issues facing the nation.
The new Administration’s actions, including with respect to tariffs and the war in Ukraine, have the potential to bring significant changes to relations with several major countries in East Asia, prompting reactions from them and other countries in the region. In each case, geopolitical and geoeconomics aspects of the US’ relations with these countries seem closely intertwined. The President promised a tough line on China in the campaign, including tariffs of 10-20% potentially rising as high as 60% and focusing on China as a security threat to the US. The Administration imposed 10% general tariffs on China in February, then raised them to 20%, an action which prompted stronger retaliation from China. In addition, the “America First Investment Policy” restricted both Chinese investment in the US and certain outbound US investment to China. In quite strong language, it called for a study of the US-China bilateral tax treaty and noted that the treaty, China’s admission to the World Trade Organization, “and the related undertaking . . . to accord unconditional Most Favored Nation treatment to goods and services of the PRC, led to the deindustrialization of the United States and the technological modernization of the PRC military.” The Policy stated that the US “will seek to reverse both of these trends. United States investors will invest in the future of America, not the future of the PRC.” At the same time, however, there have been hints that the Administration seeks a deal with China on the broader economic relationship. The President suggested, for instance, that a deal could include a sale of TikTok to a US entity rather than subjecting the app to the ban that Congress enacted last year (currently on hold in the attempt to find a US buyer). Senator Steve Daines (R-MT) recently visited Beijing with seven US companies, meeting with Premier Li Qiang. Daines noted that his meeting “was the first step to an important next step, which will be a meeting between President Xi and President Trump,” possibly for June. While Daines echoed the President’s call for Chinese action on production of fentanyl precursors (a ground on which tariffs were imposed), Li spoke of “candid communication” to “build trust and clear up misgivings.” For his part, the President once again mentioned “flexibility” in negotiating the reciprocal tariffs scheduled to be imposed on April 2 on a number of trading partners and cited his “great relationship” with President Xi. Speaking in early March, Foreign Minister Wang Yi asked about the impact of US tariff policy on the US itself: “Has its trade deficit widened or narrowed? Has its manufacturing become more or less competitive? Has inflation gone up or down? Have the lives of its people got better or worse?” Making an implicit link between the geopolitical and geoeconomics dimensions of the relationship, Wang said that it was not possible to restrict China and have good relations, terming this “a two-faced approach . . . not good for the stability of bilateral relations or for building mutual trust” and saying that China would resist “arbitrary pressure.” However, he emphasized that “[i]t is fully possible for China and the US to become partners, helping each other succeed and prosper together” – language that raises hopes for a broader deal with the US. But China might wish not only for a deal on economic issues, but also one with geopolitical implications, notably on Taiwan and the South China Sea, potentially raising risks for US allies in the region. While China has not taken any notable actions specifically to test the new Administration, it has also continued a pattern of escalating “grey zone” tactics, including military patrols, that serve to expand Chinese influence and, in some instances, de facto control without risking major conflict. As the new situation unfolds, it can feed on itself to push boundaries further, forcing other powers to consider how to react and what the true red lines are. For instance, in the South China Sea, where China claims the bulk of the region, for the last dozen years China has expanded operations, including its Coast Guard and fishing fleet, to areas clearly within the Philippines’ exclusive economic zone. Last year, China forced a Philippine Coast Guard ship to withdraw from Sabina Shoal after China blocked attempts to resupply the ship. Chinese ships also regularly conduct operations around the key points of Mischief Reef and Second Thomas Shoal, where the Philippines maintains an outpost. China has expanded its air sorties into Taiwan’s air defense identification zone (ADIZ) and around the island, part of a pattern since former House Speaker Nancy Pelosi visited Taiwan in August 2022, which now includes increasing use of high-altitude balloons. China has also increased military exercises that may appear to imitate a blockade or quarantine of Taiwan. Unexpectedly, it also conducted unprecedented live fire drills in a show of force in the Tasman Sea between Australia and New Zealand, forcing the rerouting of commercial flights, prompting Australia to respond by deploying anti-ship missiles. Taiwan remains at the center of both Chinese strategy and US-China relations. President Lai Ching-te recently declared China a “hostile foreign force”, an escalation of rhetoric, while China said that recent military exercises were punishment for promotion of “separatism” to which Taiwan responded. The rhetorical escalation is predictable and does not necessarily indicate greater possibility of actual hostilities in the near future. But Taiwan is clearly concerned about the question of US support in a conflict and is increasing its defense budget. Broadly, Taiwan still expects US support in case of an invasion or, perhaps, a blockade of Taiwan which would force Taiwan to respond militarily. But perhaps the best way to characterize the new Administration’s approach is a return to the traditional US position of “strategic ambiguity,” ideally designed to deter an invasion. Taiwan is also calibrating its requests: Hsu Szu-chien, deputy secretary general of Taiwan’s National Security Council, said “[w]e need the US support to sell us the most advanced weapons, and also to help train our soldiers, and they are doing that. We don’t expect the US or anyone else to fight our war, we will fight our own war.” Strategic ambiguity was designed in part to help deter invasion by making the question of US support unclear, thus raising the potential risks for China. In contrast, in Taiwan’s view, a de facto understanding that the US would not come to Taiwan’s aid or greater distance from the conflict could raise the chances of actual conflict over Taiwan. As one analyst at a Taiwanese military-linked think tank noted, “[o]ur worst nightmare scenario involving a blockade actually comes from American isolationism – where the U.S. decides to completely step away from Taiwan Strait issues.” This view shows the depth of the concern from any potential shift away from the importance of or commitment to traditional alliances, a concern heightened in East Asia by the lessening of US support for Ukraine and increasing unpredictability of US policy. A G7 foreign ministers’ meeting noted that “our basic policies on Taiwan remain unchanged and emphasize the importance of peace and stability across the Taiwan Strait as indispensable to international security and prosperity.” China responded saying that the “statements are filled with arrogance, prejudice and malicious intentions to suppress and attack China.” One response from Taiwan, geared to both economic security and the possibility of defense support, is increasing its investment in the US. TSMC’s recent announcement of $100 billion in new investment in the US in semiconductors in addition to its earlier $65 billion investments shows the importance of the US relationship and strengthens the resilience of US supply chains; ironically, though, in the view of some Taiwanese, removing parts of Taiwan’s “silicon shield” by diversifying manufacturing of chips could lessen US reliance on Taiwan and the importance of Taiwan to US national interests and thus the potential for military assistance. In all events, geoeconomics and geopolitics are closely intertwined in the US-Taiwan relationship. Japanese Prime Minister Ishiba Shigeru visited the White House on February 7. The joint leaders’ statement was strongly positive, largely in line with statements after previous summits and included strong language on the Treaty of Mutual Cooperation and Security, noting that the US “underscored its unwavering commitment to the defense of Japan, using its full range of capabilities, including nuclear capabilities.” It also reiterated commitments made under the Biden Administration, including “upgrading the respective command and control frameworks of US and Japanese forces” and praising Japan’s commitment to higher defense spending. Undersecretary of Defense for Policy nominee Elbridge Colby testified to the Senate that “[t]he President has suggested that Taiwan spend 10% [of GDP on defense] and that European NATO spend 5%. In that context, it makes little sense for Japan, which is directly threatened by China and North Korea, to spend only 2%. Japan should be spending at least 3% of GDP on defense as soon as possible, and accelerating the revamp of its military to focus on a denial defense of its own archipelago and collective defense in its region.” Despite this, the US is reportedly considering not proceeding with an earlier agreement to expand US Forces Japan, including the new joint US-Japan headquarters that is supposed to mark an increasing Japanese role in regional defense and better coordination with US forces in the event of conflict. More broadly, the President questioned some terms of the security treaty, stating that “I love Japan. We have a great relationship with Japan. [But] that’s the way the deal reads. We have to protect Japan. Under no circumstances do they have to protect us [.]” While it is true that the original treaty does not contain a provision analogous to Article 5 of the NATO Treaty obliging allies to mutual defense in case of attack, Article 5 of the security treaty provides for joint response “to armed attacks on Japan” (including on US forces), and Japan officially reaffirmed that “Article 6 allows the US to use Japanese facilities to contribute to Japan’s security and to maintain international peace and security in the Far East” – language which implies a stronger Japanese role in the event of any regional conflict and certainly to an attack on US forces in the region. Legislation in 2015 expanded the scope of joint response and “enables Japan and the US to help each other seamlessly in all situations to protect Japan.” Similar remarks also appeared in the joint leaders’ statement from February. Revising the security treaty to provide a greater Japanese role has been a longstanding interest of Prime Minister Ishiba, but economic security is an essential part of the relationship as well. In the statement, “the two leaders affirmed that bilateral economic cooperation, including on economic security, forms an indispensable part of Alliance cooperation.” The Administration made clear, however, that Japan is not exempt from tariffs, and Treasury Secretary Bessent included Japan in the list of “dirty 15” jurisdictions with “substantial tariffs and other barriers” that would be likely targets for the April 2 tariffs. (Other countries cited in the Indo-Pacific include China, Taiwan, South Korea, Vietnam, India, Thailand, Malaysia, Indonesia, and Cambodia.) Leaving aside the propriety of telling US allies, including some facing security threats from China, that their economic policies are “dirty,” the prospect of tariffs has clear implications for Japan. While the US alliance remains the cornerstone of Japan’s security policy, in economic policy Japan seeks a broader role. In particular, just as Japan took the lead in negotiating the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) once the US withdrew from the Trans-Pacific Partnership in the first Trump Administration, so too now Japan’s interests lie not only in avoiding US tariffs to the extent possible but also in its traditional interest in preserving open trade. This interest will only grow to the degree the US draws away from multilateral efforts and open trade in favor of bilateral negotiations in which the US believes it has the upper hand. This will clearly push Japan to continued closer economic relations with Southeast and South Asia but also to maintain strong economic relations with China to the degree possible, particularly as there is no vehicle for multilateralism in trade in the Indo-Pacific in which the US is involved but only the CPTPP and the Chinese-led Regional Comprehensive Economic Partnership (RCEP) of which Japan is a member (the RCEP grew out of an earlier ASEAN+3 (China, Japan, South Korea) effort at opening trade). All this puts Japan in the position of raising its overall defense posture to counter Chinese threats, including in the East China Sea, plus a continued threat from North Korea that lies at the heart of the recent improvement in relations and defense cooperation with South Korea but also seeking to maintain strong economic relations with China in its own interests – a difficult balance. The recent foreign ministers meeting of China, Japan, and South Korea also highlights shows the importance of those economic relationships. While from one perspective the US surely welcomed the meeting as providing an opportunity to ease the potential for conflict in the region, these types of meetings – and perhaps their results – will surely increase if the US continues a policy of economic disengagement in the region other than the threat of tariffs and pressure to purchase US goods. One area of likely greater US-Japan cooperation is energy; for Japan, energy security is an essential part of economic security. The Administration is seeking to build a pipeline in Alaska that could export liquefied natural gas (LNG) to the Pacific, including to Japan, one way to reduce the current trade deficit. The joint leaders statement highlighted increasing LNG exports to Japan as well as “deploying cutting-edge small modular reactor and other advanced nuclear reactor technology.” Japan imported about 10% of its LNG, much from shale gas, from the US in 2024. Other regional countries, including South Korea and Vietnam, could also purchase US gas, which competes with gas from other sources including Qatar (the second largest exporter) and Australia. As an alternative to spot market purchases, they could seek long-term involvement in US gas, for instance through support for new export terminals or pipelines. Here again, however, the geopolitics is hard to separate from the geoeconomics: Secretary of State Marco Rubio suggested that LNG should be “leverage” in negotiations with China – a difficult stance to maintain when importers have other options and will want to avoid overdependence on a source which could then use that leverage beyond the normal workings of market forces. In addition, the US and Japan are working together on quantum computing, in an effort to counter China’s potential dominance of the emerging field. Japan has also continued to expand export controls on sensitive technology, including advanced chips and items related to quantum computing, a stance it took under the Biden Administration after the US imposed similar export controls. Japan has also expanded its list of entities subject to greater scrutiny on export controls. Chinese foreign policy has traditionally sought stability, perhaps particularly at a time of great change and uncertainty. While the US and Japan each have deep security concerns on China, both leaders have also sought in their own ways to improve relations with China – steps that could eventually have geopolitical as well as economic importance. What will the Administration do? There are signs that the reciprocal tariffs, which would have a severe impact on Asian economies, may be lessened; the President noted that “I may give a lot of countries breaks. It’s reciprocal, but we might be even nicer than that.” Whether this arises from concerns over the impact on the US economy or other concerns, many Asian countries remain concerned about the impact of shifting and uncertain policy – a significant change in US posture in the region for which they are beginning to consider additional responses even while seeking to preserve their relations with the US. China, meanwhile, seeks to use the situation to its advantage.
Key Insights
China
Security Issues
Taiwan
Japan
Economic Security, Tariffs, and the Region
Areas of Cooperation
Conclusion
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