Beijing to ban all imports of seafood from Japan: Japanese media

Key Concepts

• Economic Coercion: The use of economic means, such as trade restrictions or bans, to achieve political objectives.
• Diversification: The strategy of spreading economic activities or markets across multiple countries or sectors to reduce reliance on a single source.
• Supply Chain Weaponization: The exploitation of economic interdependencies, particularly in supply chains, for political leverage.
• Deterrence: Actions taken to discourage an adversary from engaging in undesirable behavior.
• Reputational Costs: The negative impact on a country's international standing and credibility resulting from its actions.
• Resilience: The capacity of a system or economy to withstand and recover from shocks or disruptions.

Japan-China Diplomatic Dispute and its Economic Repercussions

The ongoing diplomatic row between China and Japan is significantly impacting Japan's economy, particularly its seafood and tourism sectors, as well as its film industry. This escalation follows China's partial easing of a 2023 restriction on Japanese seafood imports, which was initially imposed due to Japan's decision to release treated wastewater from the Fukushima power plant.

Impact on Japanese Seafood Exports

• Previous Market Dominance: Prior to the 2023 ban, China was Japan's top buyer of scallops and a major importer of sea cucumbers. China previously accounted for over a fifth of Japan's total seafood exports.
• Export Decline: The 2023 restriction caused Japan's seafood exports to mainland China to dip to 15.6% in that year, down from 22.5% in 2022.
• Comparison with Other Markets: In 2022, Hong Kong represented 26.1% of Japan's seafood exports, and the US accounted for 15.7%.
• Potential for Further Blows: Reports of a fresh ban on Japanese seafood shipments are expected to inflict further damage on Tokyo, especially as hundreds of Japanese companies were anticipating a return to the Chinese market.

Resumption of Beef Shipments and Other Trade Concerns

• Suspended Talks: Talks between Japan and China regarding the resumption of beef shipments have reportedly been suspended. This development occurred after the issue was opened for discussion for the first time in 24 years.
• Historical Ban: The ban on beef shipments into China was initially imposed following the outbreak of mad cow disease in Japan in 2001.
• Broader Trade Implications: The current dispute is extending beyond trade, raising concerns about potential restrictions on other Japanese exports.

Impact on Japan's Tourism Industry

• China's Travel Advisory: China has advised its citizens against traveling to Japan, leading to mass cancellations of trips.
• Economic Significance of Tourism: Japan's tourism sector constitutes a significant 7% of its overall GDP and has been a major contributor to recent economic growth.
• Chinese Tourists' Contribution: Visitors from China historically form the largest group of tourists to Japan, making up one-fifth of all arrivals.
• Record Arrivals and Cancellations: This year, Chinese visitors to Japan had reached a record high with up to 820,000 tourists. However, the escalating row is expected to cause a dip in these numbers.
• Airline Refunds: More than 10 Chinese airlines have offered refunds on Japan-bound routes until the end of the year. An analyst estimates that around 500,000 tickets have already been cancelled.

Impact on Japan's Film Industry

• Frozen Regulatory Reviews: China has frozen regulatory reviews for new Japanese films.
• Postponed Releases: Six Japanese film titles have been postponed, despite having previously received approval and secured release dates. Notable examples include "Cells at Work" and a new "Crayon Shinchan" movie.
• Continued Screenings: Japanese films released before the suspension order, such as the anime blockbuster "Demon Slayer," are still being shown in cinemas, though ticket sales have reportedly plunged.

Analysis and Perspectives on the Dispute

Japan's Response and Diversification Strategy

• Reputational Costs for China: Professor Steven Nagi of the International Christian University suggests that Japan's allies are closely observing the situation, and China's actions may incur reputational costs.
• Diversification as a Solution: Japan is focusing on diversifying its fishing markets and, eventually, other markets away from China.
• Historical Precedent (Rare Earth Embargo): Professor Nagi draws a parallel to the 2010 rare earth embargo imposed by China on Japan. At that time, Japan found technological solutions and diversified to other countries, reducing its dependence on China. He believes this approach by Beijing will have diminishing returns.
• "Lesson from Tokyo": The lesson for Japan and other countries is to diversify to avoid being subjected to similar economic coercion.

China's Motivations and Limitations

• Maintaining Narrative on Taiwan: China's actions are seen as demonstrating its interest in maintaining its narrative about Taiwan and discouraging other countries from discussing it in the context of security policy.
• Limited Control over Japan: Professor Nagi questions how far China is willing to go, noting that it has not been able to control the US or the G7 regarding comments on Taiwan.
• Economic Slowdown and Need for Trade: China's slowing economy necessitates trade and partnerships, including with Japan. Engaging in economic coercion may have negative consequences for China itself.
• Short-Term Hopes vs. Reality: Beijing may have hoped for a change in Japan's position on Taiwan being a security contingency. However, Professor Nagi believes this is unlikely due to high public support for Prime Minister Kishida and strong US-Japan security relations.

Japan's Stance on Taiwan and Resilience

• Consistent Policy: Japan's stance on Taiwan has been consistent since former Prime Minister Abe's view that a Taiwan contingency is a Japanese security contingency.
• Focus on Resilience: Former Minister of Economic Security, Kishida, emphasized resilience and selective diversification away from China.
• Balancing Engagement and Resilience: Japan's policy involves engagement with China through trade agreements like the Regional Comprehensive Economic Partnership (RCEP), while also pushing back against the weaponization of supply chains and markets, and focusing on deterrence.

Deterrence and Future Outlook

• Japan Leading the Charge: Japan is expected to lead discussions at upcoming G7 and multilateral meetings against the weaponization of markets.
• Diminishing Returns for Beijing: Professor Nagi anticipates that China will have to reconsider its tactics as they may have diminishing returns and impact the Chinese economy.
• Litmus Test for China's Tactics: The situation will serve as a barometer for how long China continues its hardline tactics against Japan.

Likelihood of De-escalation

• Historical Precedent (2010-2012): The last period of similar tensions was in 2010 and 2012. It took approximately four to five years for relations to stabilize, with a meeting between Xi Jinping and Prime Minister Abe in 2018 leading to 55 trade and infrastructure connectivity agreements in third countries.
• Economic Pressure on China: Professor Nagi emphasizes that China's economy cannot withstand further pressure. While the current situation will hurt Japan in the short term, China's economic vulnerability could lead to further downward pressure, impacting social stability and the Beijing government's regime stability.
• Consequences for Beijing: The economic consequences for China could be significant, potentially forcing a re-evaluation of its hardline tactics.

Conclusion

The escalating diplomatic tensions between China and Japan are having tangible and significant economic consequences for Japan, particularly in its key export and tourism sectors. While China is employing economic coercion, Japan's strategy of diversification, coupled with strong international partnerships and a consistent stance on security issues like Taiwan, is seen as a long-term approach to mitigate such pressures. The economic realities facing China, including its own slowdown, may ultimately influence the longevity and intensity of these hardline tactics. The situation highlights the growing trend of economic coercion and the importance of resilience and diversification in international trade relations.