My Vision No.41
2019.4How should we understandthe US-China Confrontation?

The Trump administration’s “America First” policy has ignited a trade conflict between the US
and China. While a leaders’ summit is scheduled for spring 2019 and it is hoped that progress will
be made in negotiations, the power struggle between the two nations can be expected to continue
for the immediate future. Confrontation between the US and China has the potential tosignificantly change the postwar world order. How should we view the essence of the confrontation
between these two nations? As a nation that has enjoyed prosperity predicated on postwar peaceand free trade, how should Japan respond in future? It is essential that we discuss these issues ingreater depth, not only from the economic perspective, but also with consideration of Japan’s
security stance.

About this Issue
What is the essence of the confrontation between the US and China?
– Preparing Japan to respond to a new international order
Yuri Okina

NIRA Executive Vice President, Chairperson of The Japan Research Institute, Limited
Keywords…Negotiations on structural issues, long-lasting and deep-rooted conflict, new international
order, multifaceted perspectives

Expert Opinions
How should we understand the US-China Confrontation?
What is the essence of the confrontation between the US and China?
How should Japan respond?

The US-China confrontation is a consequence The western nations must increase the appealof domestic circumstancesof liberal democracy
Hiroshi Nakanishi
Satoshi Machidori
Professor, Graduate School of Law, Kyoto
University
Keywords…US backing away from international
cooperation, China fearing opposition to
Communist Party rule, medium- and long-termrisks to Japan, desirable international order for
Japan

Professor, Graduate School of Law, Kyoto
University
Keywords…The west’s liberal democracy andChina’s imperial despotism, attraction oftechnological despotism to the rulers of developing
nations, embedding freedom and a spirit oftolerance

Deepening Japan’s self-recognition as an “asiannation” against the background of China’s aim torealize a new international order and the USChina conflict
Shin Kawashima

Entering an era of management decisions
based on security perspective

Professor, Department of Advanced Social andInternational Studies, Graduate School of Arts andSciences, The University of Tokyo
Keywords…An international order not based on
democracy, illusion of the advanced nations,
turning point to a new era, Japan’s urgent
situation

Masahiko Hosokawa

Designated Professor, Chubu University

Keywords…Huawei problem, vigilance towards
China as a “basso continuo,” corporate order-based
diplomacy in relation to China, Europe as the key

The challenge of one world, two systems
Martin Wolf
Chief economics commentator at the
Financial Times, London
Keywords…China as partner and hostile power,
conflict and cooperation with China, necessity ofprotecting the freedom of the west

Interview period：January – February, 2019
Interviewer: Reiko Kanda(NIRA Executive Vice President,
Senior Director)
Mari Kawamoto(NIRA Research Coordinator, Researcher）

This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement

My Vision No.41
2019.4
About this Issue

What is the Essence of the Confrontation
between the US and China?
– Preparing Japan to respond to a New International Order
Markets hope for Progress in Trade Negotiations
In late February 2019, President Trump announced that
due to progress in dealing with important structural issues in
Cabinet-level trade negotiations between the US and China, hewould postpone increases in tariffs on Chinese products (from
10% to 25%) originally scheduled for March 2. Since summer
2018, the US and China have taken turns in applying tariffincreases to specified products, which is not only affecting the
Chinese economy (target products including electrical devices
Yuri Okina
represent 2% of the nation’s GDP at 250 billion USD), but also
NIRA Executive Vice President,
global supply chains. In addition, the items under negotiation
Chairperson of The Japanare not limited to increased tariffs, but encompass a variety of
Research Institute, Limitedareas, including non-tariff barriers, the protection of intellectual
property rights, and technology transfers. With the news of a postponement of tariff increases, theexpectation of future progress in negotiations between the two nations concerning structuralproblems has relieved financial market actors who have been anxiously monitoring the status of thenegotiations, and share prices have stabilized globally.
Will it be possible, then, to resolve the deterioration in US-China relations at the leader’ssummit scheduled for spring 2019? In order to answer this question, we need to tease out thebackground to the conflict between the two nations which has become increasingly apparent since
President Trump took office, and think about the future of US-China relations. In this issue of My
Vision, we hear from a group of experts concerning the background to the deterioration in relations
between the US and China, the future outlook, and the course that Japan should take.

Competition in the IT Arena has been added to the Conflict between Systems
Professor Satoshi Machidori of Kyoto University indicates that the conflict between the US andChina is a consequence of long-standing domestic circumstances in both nations. In the US, the moodof resentment against the fact that the nation has borne the cost of ensuring international cooperationand stability since the end of the Second World War is becoming stronger. In China, meanwhile, theexistence of severe economic disparities drives fears that dissatisfaction among the populace mightspark opposition to the Communist Party. The domestic conditions in both nations mean that neither
is able to assume the burden of the cost of international cooperation, and neither is prepared to yield.
If we recognize that the character of the postwar international order is changing significantly, theargument that it is mistaken to view the friction between the US and China as a short-term effect of
the Trump administration is a compelling one.
Professor Hiroshi Nakanishi of Kyoto University offers the important perspective thatcompetition in the field of IT technology is a new factor that has been added to this fundamental conflictof systems that is occurring between the two nations. Having begun to have confidence in the use of IT
technology to stabilize a Communist Party-dominated political system, it is difficult for China’s
government to relinquish its hold on such technology. What is happening currently is a competition
between two systems – the western liberal democratic political system and the system of imperial
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement

My Vision No.41
2019.4
despotism that has developed in China over the course of a millennium –being conducted using 21stcentury technology. The fact that the US views China’s 5G and AI technologies, as presented in the“Made in China 2025” vision, to be a threat to its national security is a reminder of the depth of thisproblem.

How should we position Ourselves in relation to China as an “Undemocratic State”?
The view that the conflict between the US and China is long-lasting and deep-rooted is sharedby the scholars featured in this issue of My Vision. How, then, should the Japanese government, andJapanese companies, respond? Professor Shin Kawashima of The University of Tokyo warns us thatJapan must directly face the fact that through policies such as the Belt and Road Initiative, China iscreating a Chinese economic zone that is not based on democratic principles. He points out that theadvanced western nations have offered foreign aid based on the illusion that the economic developmentof emerging nations will spur them to choose freedom and democracy, but that Japan has ultimately
failed to provide the nations that are the targets for its aid with attractive offers that accord with their
particular circumstances. As a part of Asia, Japan must adopt a sense of urgency in thinking about how
to build relations with China. Having this pointed out helps us to come to numerous realizations,
including in comparing Japan’s response with the resoluteness of the US response.
Professor Masahiko Hosokawa of Chubu University, who was formerly involved in tradenegotiations as a member of staff of the Ministry of Economy, Trade and Industry, indicates that thepotential disruption of supply chains such as Huawei’s by the US government will also affect large
numbers of Japanese companies, and offers the important perspective that business managers are
considering how to take out “insurance” from the security perspective. Professor Hosokawa alsosuggests that the Japanese government should maintain its basic stance of prioritizing theinternational order, and should adopt a different approach than the US in attempting to correct China’s
trajectory, by strategically involving Europe in cooperative measures.
Martin Wolf, chief economics commentator with the Financial Times, London, and the soleoverseas (in this case European) expert consulted in this issue, is of the opinion that the conflict
between the US and China can be viewed as a new cold war. However, the bigger picture is more
complex: from the perspective that the western nations consider China to be an ideological threat, it isan enemy; from the perspective that it is incorporated in the world economy, it is a friend. In addition,
it is necessary for the western nations to recognize that China’s dependence on the markets of western
nations is far greater than US dependence on the Chinese market, and that the west’s ideology of
freedom, democracy and the rule of law possesses considerable attractiveness. Mr. Wolf proposes that
the US should maintain its network of alliances and seek to share its values while encouraging China
to reform. The fact that Mr. Wolf emphasizes the importance of realizing a combination of cooperationand competition with an increasingly powerful China that does not lead to conflict can serve as areference point in the current situation.
While the experts in this issue may differ slightly with regard to the specific points of emphasisin the proposals they make regarding the direction that Japan should take in the future, they are united
in their belief that the nation must adopt a multifaceted perspective on the background to the conflict
between the US and China, and must prepare with a sense of urgency for a new international order.

Dr. Okina is NIRA’s Executive Vice President and Chairperson of The Japan Research Institute, Limited. She holds a
Ph.D. in economics from Kyoto University. Her official positions include serving as a member of METI’s Industrial
Structure Council.

This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement

My Vision No.41
2019.4
Expert Opinions

The US-China Confrontation is a
Consequence of Domestic Circumstances
We should think about the confrontation between the
US and China as a consequence of the domestic situation inboth nations. Since the end of the Second World War, the US
has assumed the cost of stabilizing the world economy and theglobal security situation. At first this was a responsibility
taken up by the US alone; since the 1970s, the other advanced
nations have committed to creating an international order,
cooperating with the US and assuming some of the burden. In
recent years, however, criticism of the fact that the US has
accepted the burden of ensuring international cooperation andSatoshi Machidori
stability is increasing within the nation itself, and the US is
Professor, Graduate School ofbacking away from active participation. This is the backgroundLaw, Kyoto University
against which the Trump administration had its advent. At thesame time, China faces economic disparities that cannot be ignored, and the Chinese people are
dissatisfied. The administration is concerned that this mood could swell and ignite opposition to
Communist Party rule. China has little leeway to improve its trade balance and absorb the costof international cooperation.
Both nations are subject to domestic circumstances that prevent them from assuming theburden of the cost of ensuring international cooperation, and this is a factor intensifying theconfrontation between them. The US seeks to contain a China that is increasing its presence inareas including intellectual property rights and security, and the Chinese side will not yield.
China’s birthrate is declining and its population is aging rapidly, and it will be difficult for thenation to maintain growth unless it makes the transition to realize the industrial structure of anadvanced nation. Intellectual property rights and technological dominance will be the means ofachieving this goal, but these are also important for the US. Even if there is an easing oftensions on the security front, we should assume that there is a strong possibility that theconfrontation itself will have become chronic, and will continue for an extended period.
Japan focuses too much on the orientations of Donald Trump and Xi Jinping, and on its
relationship with these leaders. It will be essential for Japan to cease over-emphasizing shortterm elements characterizing their individual administrations, and to adopt a multifaceted
perspective, taking into consideration long-term elements: Structural problems and the change
in the character of the international order. But the 2020s will be a difficult era for Japan. If we
do not then have a clear idea of the international order and socioeconomic structure that is mostsuitable for Japan, Japan risks being at the mercy of surrounding nations, or of entering a phaseof decline. It is a matter of concern that there is inadequate discussion of policy issues in Japan
today. Administrations stay in power for extended periods, creating a situation in which few
alternatives are presented and there is insufficient sense of urgency in terms of policy. Against abackground of ongoing domestic and international situations that offer little cause for optimism,
it is essential that the public should share an awareness of medium- to long-term risks.
Professor Machidori is a political scientist specializing in comparative politics. His research analyzes relationships
between political parties and between the administrative division and parliament by means of comparison of
institutions and time series comparisons. He took his Ph.D. in Law from Kyoto University. Professor Machidori’s main
research focuses are contemporary Japanese and US politics, and he is the author of numerous books and papers.

This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement

My Vision No.41
2019.4
Expert Opinions

The Western Nations must increase the Appealof Liberal Democracy
As the speech made by US Vice-President Mike Pence on
October 4, 2018 makes clear, the issues at the center of theconfrontation between the US and China extend far beyond trade
and technology. As China moves toward achieving the dominantposition in key technological areas including 5G (the goal of
Huawei) and AI, for the US China is becoming not merely an
economic and technological competitor, but also a threat at thelevel of national security.
On the other hand, for China’s current regime information
technology
is not merely an issue of external competitiveness, but
Hiroshi Nakanishi
is also enormously significant as a means of domestic governance.
Professor, Graduate
Since the Song Dynasty, the Chinese political system has been an
School of Law, Kyoto
imperial one in which authority is concentrated in the hands of the
University
emperor, and it has stabilized the country by this means. Under its
policy of reform and openness, China’s Communist Party under Deng Xiaoping and later leaderslegitimized its control based on the precondition of economic development, but the Xi Jinping
administration appears to be returning to a traditional system of imperial despotism as thegrowth rate declines. While claiming to maintain the safety of the Chinese people by applying
the latest information management technologies, the Xi administration appears to also be using
it to realize a system of internal control exceeding even that of the former imperial system. If wetake this to be the case, we can see that it will be extremely difficult for China to relax its control
of information technology.
Expressed differently, at the root of the confrontation between the US and China is acompetition between two systems – the western system of liberal democracy and China’s 1,000year-old system of imperial despotism – being conducted using 21st century technology. Given
that China is confident in its technological power, there is every possibility that the confrontation
between the two nations could last a long time.
Chinese-style technological despotism is attractive to the leaders of authoritarian regimes,
and these nations are prone to embrace the influence of China. Looking back, the hasty
imposition of liberal democratic systems on developing nations and formerly Communist nationsin the post-Cold War period by the western advanced nations (including Japan) was imprudent,
and the rising skepticism and disillusionment with liberal democracy in those western nations
themselves in the wake of the global financial crisis is adding to the appeal of Chinese-style
governance. It is necessary for the western nations to counter the increasing appeal of
authoritarianism in China’s domestic system and the entrenchment of China’s influenceinternationally, and to apply pressure for an acceptance of western values. But rather thaninsisting on imposing a formal system of liberal democracy on the rest of the world, the west
should demonstrate the attractiveness of its system by making it a priority to embed a spirit of
freedom and tolerance in other societies based on a recognition of the existence of diverse
cultures and taking the initiative in addressing the issues and problems caused by thedevelopment of information technology.
Professor Nakanishi is a political scientist. His main research interests are historical research in 20th century
international politics and international political science, the history of international relations in the postwar AsiaPacific region, Japanese diplomacy, and security policy. He completed his Master’s degree in law at Kyoto University.
Among his official positions, he has been a member of the Advisory Panel on Reconstruction of the Legal Basis for
Security under the second Abe Cabinet and the 2nd Term of the New Japan-China Friendship Committee for the 21stCentury.
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement

My Vision No.41
2019.4
Expert Opinions

Deepening Japan’s Self-recognition as an “Asian Nation”
against the Background of China’s Aim to realize a New
International Order and the US-China Conflict
The western advanced nations have concentrated the world’s
wealth in their own territories by means of their command oftechnology and wielding of overwhelming economic and military
power. Today, a sense of crisis is growing: If the balance oftechnological dominance shifts to China, will the next industrial
revolution occur in an undemocratic nation? Will there be atransition in hegemonic power from the US to China? This feelingis demonstrated by US Vice-President Mike Pence’s wide-ranging
criticisms of China, encompassing military affairs, security
concerns, and human rights issues.
Shin Kawashima
Today, the number of nations in the world which do notProfessor, Department of
democratize despite realizing economic development is increasing.
Advanced Social andInternational Studies, Graduate
China seeks to position itself at the center of this group. By means
School of Arts and Sciences,of its Belt and Road Initiative, China is advancing westward,
The University of Tokyo
creating a single economic zone in a region in which there are no
advanced nations, through Eurasia and reaching into Africa, by investing in road, rail and otherinfrastructure and providing international public goods such as satellite and communications
technologies. In this zone, China is attempting to create an international order which is not based on
democratic principles.
If the advanced western nations, including Japan, wish to protect their values, they must first
give up the illusion that developing nations will necessarily embrace the advanced nations’ conceptthat freedom and democracy will be nurtured if the economy develops. While the advanced nations
have up to the present offered foreign aid on the precondition that it promotes democratization, China
makes no such demands. Today, the tendency among nations in Asia or Africa to choose China rather
than the western nations when seeking foreign aid is quite marked. China makes attractive offersthat accord with the situation in the target nation, decides rapidly regarding the provision of aid, anddoes not apply conditions like democratization.
Is today’s Japan experiencing a sense of crisis, viewing the contemporary situation as ahistorical turning point? The US is moving seriously towards a confrontation with China. But thisdoes not mean that Japan must necessarily act in the same way as the western nations. The only
East Asian member of the G7, Japan’s is strongly influenced by China, and the relationship between
the two nations is deep. Given this, Japan may be isolated in Asia if it adopts China policies that
accord completely with those of the western nations. If the US pressures Japan to cease technologicaltransactions with China due to its sensitivities regarding companies such as Huawei, we will be in asituation resembling that in effect when CoCOM was formed. How should Japan respond, linked as it
is with China through its supply chains? And in terms of geopolitical security, what will thedevelopments be in relation to Taiwan and the Korean Peninsula, where China plays an importantrole? Japan must be aware that it is being placed in a fraught position.
Professor Kawashima is a political scientist and a historian, specializing in East Asian politics and the history ofpolitical diplomacy. A professor of The University of Tokyo, he is also a Senior Fellow of the Nakasone Peace Institute.
He has held numerous official positions related to international politics and diplomacy, including as an Advisor to the
Cabinet Office’s National Security Council, and also serves as the Chairman of the Japan Association for Modern China
Studies. Professor Kawashima has conducted a great deal of research in China, at institutions including the Beijing
Center for Japan Studies. He took his Ph.D. in Literature from The University of Tokyo.
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement

My Vision No.41
2019.4
Expert Opinions

Entering an Era of Management Decisions
based on Security Perspectives
We have made the transition from an era in which security andthe economy were separate issues, to one in which security hasentered the economic arena. Japan’s business managers must take themeasure of this momentous change. The case of Huawei presents an
example. There is a possibility that Huawei will become the subject ofa US export embargo. This not only shuts out Huawei products by
preventing their purchase or use, but also disrupts supply chains by
preventing the manufacture of parts for Huawei and their sale to thecompany. If this happens, the many Japanese companies that supply
Masahiko Hosokawa
parts to Huawei will be forced to make difficult choices. I do not mean
to imply that they should withdraw from the Chinese market.What
Professor, Chubu University
they will do is to make judgments on a field-by-field basis, and takeout “insurance” in fields that are sensitive from a security perspective. This is what business managers
are looking into today.
Vigilance towards China has for some time been a common factor in all areas of US
government, and it continues to resonate as a “basso continuo.” The current push by President Trump
is separate to this, representing nothing more than a superficial “melodic theme.” Even if there is anagreement on tariff issues, it will only be a brief interruption, and will not affect the basso continuo.
The Japanese government should recognize this essential status and make use of the current
good relations between China and Japan by advancing a type of diplomacy in which it attempts tochange China’s direction by pointing out its disagreement with specific policies. The US strategy ofapplying sanctions in order to pressure China is not the only way. China will refuse to relax the gripof Communist Party rule. Japan should express its disagreement within a scope that does not
attempt to do so, attempting to change China’s trajectory gradually. For example, China is making
the use of its own national standards mandatory in establishing the infrastructure for its Belt andRoad Initiative, putting other nations in a position that will leave them no choice but to use Chinese
products. This has led to concerns that ultimately China may obtain these nations’ data. Japan
should express its disagreement to China in order to correct distortions of this type.
Everyone is focusing on the US and China, but for Japan the key is Europe. As President
Trump runs amok with talk of tariff sanctions, cooperation with Europe is essential from theperspective of maintaining the US’s connection with the international order. Japan is overwhelmingly
the weaker party in its bilateral relationship with the US, and Japan-Europe cooperation will be
important to restraining the US. It will be necessary, via cooperation between Japan, Europe and theUS, to remake the WTO rules that are not functioning, and to create mechanisms that will draw
China into this forum. Japan must remain consistent in its basic stance of prioritizing theinternational order. A nation that claims that order is important but fails to take action against the
US and China for violations of WTO rules is a nation that will not win trust.
Professor Hosokawa was formerly engaged with the Ministry of Economy, Trade and Industry (previously known as
the Ministry of International Trade and Industry). In addition to teaching economics at Chubu University, he also
makes appearances as a commentator on television, conducts lectures, and serves as an advisor to local governments
and as an advisor and executive of global companies. At the Ministry of Economy, Trade and Industry, he was on thefrontline of trade negotiations between Japan and the US in positions including Director of the Americas Division of
the Trade Policy Bureau and Director of the Trade Control Department of the Trade and Economic Cooperation
Bureau. A graduate of the Faculty of Law of The University of Tokyo, while a staff member of the Ministry of Economy,
Trade and Industry, Professor Hosokawa was a visiting researcher at Stanford University and completed an AMP at
Harvard Business School.
This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement

My Vision No.41
2019.4
Expert Opinions

The challenge of one world, two systems
Three recent pieces of evidence reveal alarm over the rise of
China: The campaign against Huawei, standard bearer for Chinese
technological ambitions, and the labeling of the nation as a “partnerand systemic competitor” by Germany’s BDI, and as “the mostdangerous opponent of those who believe in the concept of open
society” by George Soros. It is clear that the west sees China at best
as an uncomfortable partner, and at worst as a hostile power.
Should we conclude that a new “cold war” has begun? Yes andno. Yes, because so many westerners think of China as a strategic,
economic and ideological threat. No, because China is not exporting
Martin Wolfa global ideology, and, unlike the Soviet Union, is embedded in the
Chief economics
world economy.
commentator at the
Financial Times, London
The right path is to manage relations that will be bothcompetitive and co-operative, recognizing China as both foe andfriend. We must embrace complexity. We need to recognise that the US and its allies possesshuge strengths. These nations spend vastly more than China on defence, have bigger economies,
and account for a larger share of world imports. Again, China’s dependence on markets in highincome countries is far greater than US dependence on China. Moreover, the high-income
democracies continue to possess a more attractive ideology of freedom, democracy and the rule oflaw than China’s communism offers.
Thus, the US should view its situation with far greater equanimity than China, provided
it retains its network of alliances. It could then recognise its interdependence with China as astabilising force, and similarly recognise that making common cause with allies, in the context of
the rules-governed trading system it created, would increase pressure on China to reform.
Co-operation is as essential as interdependence. We cannot manage the global
environment or ensure prosperity and peace without co-operation with China. However, none ofthis implies that western countries need accept whatever China wants.
Ultimately, it is indeed vital, as Mr. Soros suggests, that we protect our freedom and thoseof Chinese people living in our countries from China’s new “social credit” system.
A new great power has emerged, and in response, many are trying to shift the world into
an era of unbridled strategic competition. What is needed instead is a combination of competitionand cooperation with a rising China. The alternative will be deepening hostility and risingdisorder. Nobody sensible should want that. So stop, before it is too late.
Mr. Wolf is the Chief Economics Commentator at the Financial Times, London. The author of numerous books andarticles, he was awarded the CBE in 2000 “for services to financial journalism.” After graduating with a Master ofPhilosophy degree in Economics from Oxford University, he joined the World Bank, eventually becoming a senioreconomist. He joined the Financial Times in 1987, and took his present position in 1996. Mr. Wolf’s articles appeal to awide range of readers in addition to financial specialists, combining as they do broad-ranging knowledge and insightful
analysis.

(c) The Financial Times Limited 2019. All Rights Reserved.
The Nippon Institute for Research Advancement (NIRA) is solely responsible for the creation of this edited
version of a text that originally appeared in the Financial Times:
Martin Wolf, “The challenge of one world, two systems: Unbridled strategic competition between China andthe west would be a disaster,” Financial Times, January 30, 2019.
The Financial Times Limited does not accept any liability for the accuracy or quality of this edited versionof the text.

This is a translation of a paper originally published in Japanese. NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.
Copyright Ⓒ 2019 by Nippon Institute for Research Advancement