Japan’s Takaichi Has Few Options to End China’s Retaliation

(Bloomberg) — Japanese Prime Minister Sanae Takaichi faces his first major diplomatic test with less than a month to go before he takes office, after angering China with comments about Tokyo’s stance on Taiwan’s red line issue.

Takaichi this month became the first sitting Japanese leader in decades to link the Taiwan Strait crisis to the possible deployment of Japanese troops, prompting Beijing to threaten economic retaliation and further retaliation.

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Chinese Foreign Ministry spokesman Mao Ning reiterated his demand for Takaichi to withdraw his claim at Monday’s briefing, saying there was “no room” for ambiguity over the self-governing island that Beijing considers its own territory. He clarified the terms for de-escalation, calling on Japan to: “Stop crossing the line and playing with fire, withdraw false words and actions, and fulfill its commitments to China with real action.”

So far Takaichi has refused to back down from his comments. Takaichi, who was chosen by his party as a nationalist candidate who would demonstrate strong leadership, would face a serious political backlash if he bowed to Beijing. This is creating a distance between Japan and its largest trading partner with little apparent outlet, as Chinese state media have hinted that Beijing could impose sanctions and cut off diplomatic, economic and military communication channels if things get rough.

Kunihiko Miyake, a former Japanese diplomat living in China, said he did not expect Takaichi to back down and did not think he had to. “If China is pressuring us to weaken Takaichi, it will probably have the opposite effect,” he said, noting Takaichi’s high approval ratings of over 80%. “They’re fueling your engine.”

Takaichi may have made a strategic mistake, but as history shows, when Japan and China argue over sensitive issues, an agreement is usually reached after months of diplomatic freeze.

“Although China’s response has been very strong so far, it is very calculated,” said Rui Aoyama, a professor of Japan-China relations at Waseda University in Tokyo. “China aims to deal a blow to Japan’s economy, but I don’t think it intends to cut ties.”

The danger for Takaichi is that China will cause more damage to Japan’s economy and business than expected. Beijing’s supplies of critical minerals that Tokyo’s auto industry relies on are among its clearest obstacles. Further weaponization of rare earths could further complicate matters by attracting the attention of US President Donald Trump, who has claimed that a trade truce with China has “solved the rare earth supply problem” for the world.

This remark came at the same time as the trip, when the Republican leader told Takaichi: “Anything you want, any favors you need, anything I can do to help Japan, we’ll be there.”

Although China’s ties with Japan have been troubled for decades due to disputes ranging from Tokyo’s invasion of its neighbor in the 1930s to rival territorial claims, relations have stabilized in recent months. The outspoken views of Takaichi, who visited Taiwan President Lai Ching-te before he took office in April, may now undermine that progress.

As crisis mode kicked in, Tokyo sent a top diplomat to Beijing on Monday to try to calm relations. China’s Foreign Ministry said it had no information about the visit and told reporters that Premier Li Qiang had no plans to meet the Japanese leader at the G-20 leaders’ summit in South Africa this weekend.

Without a solution, Beijing will likely step up the pressure. China has urged its citizens, who make up nearly a quarter of all visitors to Japan in recent days, to avoid its Asian neighbor, citing security risks. Tour operators have not seen any significant flight or hotel cancellations so far, Bloomberg reported, citing sources familiar with the matter.

Two researchers at a top government think tank in Beijing wrote in state media on Sunday that Takaichi’s remarks were not a mistake on Beijing’s part as some have suggested, but were in line with his right-wing stance. They called him the “spokesperson for Japan’s new militarism”, citing Takaichi’s frequent visits to the Yasukuni shrine commemorating Japan’s war dead before taking office and his plan to increase defense spending.

All previous Japanese leaders have sidestepped the question of what the “survival-threatening situation” might be for Japan, maintaining strategic uncertainty and saying they would make a decision based on conditions at the time. Takaichi’s comments marked a departure from this stance.

“This was completely provoked by the Japanese prime minister,” said Henry Wang Huiyao, founder of the China Center and Globalization research group in Beijing, and called for more action from Tokyo. He added that when former US President Joe Biden deviated from strategic uncertainty and said his country would defend Taiwan, US officials would immediately announce that there was no change in position.

China’s ties with its neighbor last reached this level in 2012, after Tokyo decided to nationalize the disputed islands known as Senkaku in Japan and Diaoyu in China, an uninhabited but possibly resource-rich area in the East China Sea. At the time, combative rhetoric in Chinese state media helped spark anti-Japanese protests in more than a dozen cities.

This time around, Xi will likely be more cautious about fueling nationalism. A wave of violence against Japanese citizens in China last year, including the stabbing death of a schoolboy, demonstrated the dangers of inciting such anger; Beijing, meanwhile, remains generally wary of any public demonstrations, especially amid growing unease over a slowing economy.

Although the 2012 shutdown led to a months-long boycott of Japanese products, the impact was contained. Japan took a nearly 10 percent hit in exports; Given the broader global variability in trade flows, Takaichi can get around this by gambling.

Among the companies affected last time were Japanese automakers. Since then, their dependence on the Chinese market has diminished, while China’s supply of rare earths and semiconductors has increased in importance, according to Tatsuo Yoshida, senior auto analyst at Bloomberg Intelligence.

“If a rare earth embargo is implemented, it will disrupt automobile production, especially products rich in rare earths such as electric vehicles,” Yoshida said. “But I think there will be a time delay as suppliers, automakers and trading companies need to build stocks as a contingency plan.”

However, despite Takaichi’s goal of delivering stronger growth, the longer the dispute drags on, the more pressure it is likely to put on Japan’s economy and its China-focused businesses.

“Still, I don’t expect this to rise to the level we saw in 2012,” said Atsushi Takeda, chief economist at the Itochu Research Institute. “I don’t think it’s in China’s interest for China to have a deep debate with Japan while also facing the United States.”

–With help from Sakura Murakami, Lucille Liu and Toru Fujioka.

(Adds comments from Japan-China relations professor and Bloomberg Intelligence analyst.)

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