The forces of globalisation that drove business and governments through the decades leading up to the 2007–08 Global Financial Crisis have lost their power amid rising nationalism, social inequality and financial volatility. The contours of a new international order cannot yet be drawn with any certainty, but strengthening economic security is emerging as a priority for many, including the governments of Japan and Australia.
This was a key focal point of ASPI’s Japan-Australia Economic Security and Industrial Cooperation Symposium, held on 5 November. The event was attended by government and private sector leaders from Japan and Australia, including senior officials from Japanese agencies dealing with trade promotion, industry policy and the supply of energy and metals such as the Japan External Trade Organization; the Ministry of Economy, Trade and Industry; and the Japan Oil, Gas and Metals National Corporation (JOGMEC). Also in attendance were representatives from the Australian departments of Defence, Foreign Affairs and Trade, and Industry.
One of the speakers at the symposium cited Italian Marxist scholar, Antonio Gramsci: ‘The old world is dying and the new world struggles to be born.’
And yet, governments cannot wait. In her first speech to Japan’s legislature as prime minister, Sanae Takaichi underlined the need strengthen Japan’s security of food, energy and health services, as well as the country’s international security. One of her first initiatives is a review of Japan’s Economic Security Promotion Act, arguing the nation faces ‘the most challenging and complex economic security situation in the post-war period.’
In the era of globalisation, Japan was an initiator of just-in-time supply lines, in which inventories were reduced to the bare minimum and duplication of suppliers was eliminated to maximise use of capital. The challenge now is to insert redundancy into supply lines, just in case.
We can’t assume that the most competitive supplier will win the work once security concerns come into decision-making processes. However, the introduction of new criteria may fall foul of rules set by the World Trade Organization or free trade agreements. It is far from clear how business and governments should navigate these tensions.
While some see international trade rules as contributing to global imbalances and strategic tensions, those rules have served to constrain China’s behaviour. There are concerns about what may happen should they lose their force.
Critical minerals are a focus of economic security concerns. Japan was hit by a Chinese embargo on rare earth supplies in 2010, and this year faced threats of export controls imposed on a wide range of Chinese critical minerals supplies.
Speakers at the symposium emphasised that Japan cannot decouple from China. The aim is to diversify trade relationships while maintaining a stable base for procurement from China.
Strengthening supply chain security needs the work of partners both upstream and downstream to obtain reliable market demand, which some speakers described as the ‘comprehensive supply chain approach’.
Much of the discussion focused on critical minerals, which present high risks to investors. The processing of rare earths, for example, can involve hundreds of steps to separate the elements. This involves great technical complexity. The pricing of many critical minerals is opaque, and markets are susceptible to manipulation. As the dominant force in many critical minerals, China has market power.
Private capital alone will not deliver the required investment, and reducing risk will require government intervention. That intervention can involve partnership among governments.
Project financiers need to be assured that companies signing offtake agreements will stick to them, even if China floods the market with cheaper material. The development of the critical minerals industry demands secure and reliable market demand. Private companies cannot be expected to be altruistic, so some form of market support and partnership between government agencies and the private sector is required.
There is a role for government entities in setting standards for how minerals are mined, processed and used sustainably. Environmental standards can help manage the uncontrolled flow of material to the market.
There is already a series of critical mineral ventures involving both Australian mineral deposits and Japanese capital, among them the Japan Australia Gallium Associates project, which includes Japan’s Sojitz corporation, JOGMEC and Alcoa Australia.
The symposium also explored defence industry collaboration between the two countries. There is a widespread acknowledgement that military modernisation decisions were unwisely deferred in the erroneous belief that globalisation was removing the danger of inter-state conflict.
Both Japan and Australia retain faith in the strength of their alliances with the United States, despite the more transactional nature of the Trump administration. However, the US share of the global economy has declined as emerging economies, led by China and India, have developed. There is now a recognition that middle powers, including Australia and Japan, need to take greater responsibility for maintaining security.
A widespread recognition of the need to lift defence outlays could result in an inflation of military hardware as several countries pursue the same capabilities at the same time. Partners should manage this risk by integrating their industrial bases more effectively.
Defence industries face a forest of regulation, including security clearances and export controls. For this reason, the sector is regularly excluded from free trade agreements. The AUKUS agreement has made some headway in cutting through these barriers for the partners involved and may provide a model for collaboration between Australia and Japan.
Some speakers also expressed hope that Australia’s August decision to acquire a fleet of frigates from Mitsubishi Heavy Industries could galvanise wider collaboration in dual-use technologies, yielding security and economic benefits for Australia and Japan.
There is a need for greater business-to-business dialogue between Australian and Japanese defence companies, but a prior need for government-to-government coordination to smooth the path.
Some at the symposium expressed hope that the positive mutual determination between Japan and Australia may create the basis for the formalisation of a security alliance, adding to those Australia has with the US and, as of October, Papua New Guinea. That would be a suitably significant way to mark the 50th anniversary of the Japan-Australia Basic Treaty of Friendship and Cooperation, which falls in June 2026.