IEEJ：March 2021©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (525)March 24, 2021

Evolving U.S.-China Confrontation and Its Geopolitical Implications
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Foreign, national security, economic, climate change and energy policies of the U.S. Biden
administration inaugurated last January are attracting global attention as one of the most influential
factors for the future world. Among its policies drawing the highest interest may be the China policy.
At a time when the Biden administration is widely expected to retain a tough attitude
against China close to that of the previous Trump administration that launched a trade war withChina and enhanced its tough attitude against that country, the new U.S. regime is actually
implementing a tough China policy while emphasizing a new stance of giving greater priority to U.S.
alliances.
On March 16, U.S. Secretary of State Antony Blinken and Secretary of Defense Lloyd
Austin held talks with Japanese Foreign Minister Toshimitsu Motegi and Defense Minister Nobuo
Kishi at the Japan-U.S. Security Consultative Committee. “The United States and Japanacknowledged that China’s behavior, where inconsistent with the existing international order,
presents political, economic, military, and technological challenges to the (Japan-U.S.) Alliance andto the international community,” said a joint statement of the so-called 2+2 meeting. “The Ministers
committed to opposing coercion and destabilizing behavior toward others in the region, which
undermines the rules-based international system.” It was unusual for the secretary of state of a newU.S. administration to select Japan as the first country to visit, indicating that the Biden
administration gave priority to Japan as a U.S. ally in consideration of China and wanted to express
the above common acknowledgement at the first bilateral 2+2 meeting under the administration. InApril, Japanese Prime Minister Yoshihide Suga will visit the United States to become the firstforeign leader to have direct talks with President Biden. This also demonstrates that the Biden
administration sees Japan as an important U.S. ally and has a basic attitude of implementing astrategic China policy along with Japan and other U.S. allies.
Secretary of State Blinken also participated in a meeting of foreign ministers of the NorthAtlantic Treaty Organization in Brussels on March 23. He apparently attempted to improve theUnited States’ relations with Europe and NATO strained under the Trump administration andcooperate with Europe in dealing with China. On March 22, the European Union imposed sanctions
on Chinese officials and groups for serious human rights abuse in the Xinjiang Uighur AutonomousRegion, banning their entry into the EU and freezing their assets in the EU. It was the first time forEurope to impose sanctions on China since an arms embargo on China over the 1989 Tiananmen
Square Massacre. The United States, the United Kingdom and Canada joined the EU to take punitive
actions against China, demonstrating that North America and Europe cooperated in taking a toughattitude against China. Behind the cooperation have been U.S. and European hopes to reconstruct
and enhance the NATO alliance and the Biden administration’s priority given to human rights. Given
the priority put on human rights, the Biden administration may take a far tougher attitude against
China than the Trump regime in this area of the issues related to human rights.
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The United States’ and its allies’ tough attitude against China has triggered harsh reactions
from China. Beijing complained that the Japan-U.S. 2+2 statement represented serious interferencewith China’s internal affairs and undermined China’s interests. In retaliation against the EU
sanctions, Beijing banned EU officials’ travel to China and some EU companies’ deals with China.
Between his visits to Japan and Europe, U.S. Secretary of State Blinken held talks with top
Chinese foreign policy officials in Alaska on March 18 and 19, and they exchanged harshaccusations over human rights, Taiwan, Hong Kong, China’s maritime expansion, cyberattacks andother topics even in a session open to the press. While some people viewed the tough and direct talks
as significant for both sides, the meeting highlighted tough U.S.-China tensions and confrontation
and reemphasized Beijing’s resolute attitude of countering Washington’s China strategy.
Cooperation between the United States and its allies in implementing a tough China policy
has led China and Russia to approach each other in an important geopolitical development. In
response to the EU’s sanctions on China, the Chinese and Russian foreign ministers held talks
demonstrating that their countries would reject U.S. and European interference with their internalaffairs in the name of promoting democracy and human rights protection and would oppose
unilateral sanctions. As the Biden administration takes a tough attitude against human rights abuse inRussia as well as China, Beijing and Moscow are keeping step with each other to oppose such U.S.
policy and counter the United States and its allies.
Under U.S.-China tensions and confrontation, the world is expected to see the UnitedStates and its allies continuing tough geopolitical tensions with China and Russia, exerting various
impacts on the international situation, geopolitics and the global economy. In a world under toughgeopolitical tensions, national security may be put first, making it difficult to pursue global
economic efficiency. Each country may base economic and trade policies on national security andforeign policies giving top priority to itself and its allies. Then, the global economy may deviate
from economically optimum solutions, exerting downside pressure on economic growth.
The IEEJ Outlook 2021, released last October, took up this issue as part of the “PostCorona World Transformation Scenario.” It estimated that if the global economy, trade and supply
chains deviate from economically optimum solutions with national security given top priority underhigh geopolitical tensions, global GDP in 2050 would be 10% less than in the Reference Scenario. If
supply chains are relocated under the emphasis on national security and the deviation from
economically optimum solutions, national economic growth would undergo relevant impacts.
Economic growth would decelerate in China from which supply chains will be relocated, but
accelerate in India and the Association of Southeast Asian Nations to which supply chains will berelocated, according to the outlook.
The economic growth deceleration and gaps in its impacts on major countries could exert
great influences on the international energy landscape. First, global economic deceleration would
lead to energy demand deceleration. Given that social transformation through the COVID-19
pandemic is considered as the important factor for the estimation, oil demand would be affectedmost seriously. Oil and other energy demand deceleration would lead the supply-demand balance toease, exerting downside pressure on international energy prices. In this process, energy demand’s
shift from China to India and ASEAN over the long term would have significant impacts on theinternational energy landscape and energy geopolitics.
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Regarding similar impacts and implications, Royal Dutch Shell plc in its recent Energy
Transformation Scenarios indicated that economic growth and energy demand in the Island’s
scenario in which security will be put first under rising nationalism would be more sluggish in otherscenarios including the Wave scenario in which economy will be put first and the Sky 1.5 scenario in
which health and environment will be put first. The Island’s scenario covers factors that exert
various impacts on the supply-demand balance and energy prices in international energy markets andon climate change countermeasures.
While the future of the world is full of uncertainties, the current international andgeopolitical tensions including the U.S.-China confrontation are set to exert various impacts on
global economic problems. In this sense, we must carefully watch future developments.

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