US, Japan pursuing 'commercial diplomacy' to counter China

TOKYO • Chips, batteries and energy are key collaboration areas between the US and Japan as the allies seek to secure supply chains and counter China, Washington's envoy to Tokyo said.

Former Chicago mayor Rahm Emanuel has focused on "commercial diplomacy" since arriving as US ambassador this year, pushing for business tie-ups in areas that have broader significance for economic security.

One US company is looking at a "major potential investment" related to chips in Japan, in what would mark the latest collaboration between the countries on semiconductors, Mr Emanuel told Reuters yesterday. He declined to elaborate or give a timeline.

"Commercial diplomacy is a big piece of an overarching economic collaboration and coordination between the United States and Japan," Mr Emanuel said.

The two countries agreed last Friday to establish a new joint research centre for next-generation semiconductors. Japan has said it will provide as much as 92.9 billion yen (S$967 million) to help US firm Western Digital Corp and partner Kioxia Holdings boost memory chip output at a Japanese plant.

Meanwhile, Tesla supplier Panasonic Holdings last month picked Kansas as the site for a new battery plant.

That deal came together, Mr Emanuel said, after US President Joe Biden talked with Panasonic executives while in Japan. The cooperation comes as China has used its economic strength to pressure other countries, Mr Emanuel said.

"There's a pattern here: if they don't like what you say politically, they put the muscle on you economically," he said, citing Japan's experience more than a decade ago when Beijing restricted rare earth export quotas after a territorial dispute.

In a joint statement last Friday, US and Japanese ministers said they opposed "economic coercion", although they did not name a specific country. But US Secretary of State Antony Blinken said during a news briefing that "the coercive and retaliatory economic practices of the People's Republic of China force countries into choices that compromise their security, their intellectual property, their economic independence."

China has repeatedly said it never uses economic coercion against any country and is firmly opposed to all forms of coercion, politically and diplomatically. It has accused Washington of engaging in economic coercion in the name of national security.

Mr Emanuel said that if a country faces Chinese pressure, the US has to counter with "economic incentives", including using energy resources as a "strategic asset".

Japan, the world's largest liquefied natural gas (LNG) buyer, is a growing market for US natural gas. Between 2018 and 2021, Japanese imports of LNG from the US more than doubled, Japanese government data shows. The advanced nuclear reactors known as small modular reactors are another area of collaboration.

Concerns about Chinese tensions with Taiwan, which makes the vast majority of semiconductors under 10 nanometres that are used in smartphones, have driven countries like the US and Japan to step up their investment in chip production.

Mr Emanuel said there also needed to be more investment in training skilled workers to support the chip industry. "We both have to invest in more scientists, more engineers and in workers to do this," he said.

REUTERS