Mon, Oct 22, 2012 - Page 8 News List

Risks of economic interdependence

By Eric Chiou 邱奕宏

One recent news article indicated that Toyota’s car sales in China last month were half of those in the same period last year. Other Japanese car manufacturers and consumerelectronics companies have also experienced a downward spiral in Chinese markets and have yet to see signs of a recovery.

These negative impacts on Japanese businesses in China have swiftly transformed into political pressure and resentments against Japanese Prime Minister Yoshihiko Noda’s administration. The chairman of Japan’s largest business lobby, Keidanren, has criticized the Japanese government for mishandling the dispute and devastating Sino-Japanese economic relations.

Bearing enormous domestic pressure, the Japanese government has somewhat softened its original stance by making various conciliatory gestures and continuing diplomatic negotiations with China.

However, manipulating the vulnerability of asymmetrical economic interdependence involves risks and may well backfire. China’s frenetic anti-Japanese riots and military assertiveness not only stir up grave concerns for the Japanese government, but also provide Japan’s right-wing politicians with a justified reason to reinforce Japan’s military preparedness, which may further deepen distrust and plant the seeds of future instability in the region.

The Diaoyutais dispute has highlighted the risks implicit in asymmetrical economic interdependence and the implications are multifaceted and consequential.

Japan’s vulnerability stems from its economic over-exposure to China. Both its capital and technologies are not irreplaceable and certainly do not possess monopolistic sway over China, whereas China’s market is vital to revitalize Japan’s sluggish economy.

The empirically verified tenet of the democratic peace theory, that two democracies do not go to war with each other, is built on three pillars: democratic institutions, economic interdependence and participation in international organizations.

In the case of Japan and China, the first pillar does not exist, since China remains authoritarian. The third pillar falls short of providing effective constraint, since both sides seek to spoil international institutions in favor of their respective interests. Similarly, the second pillar despite its robustness, has failed to be a significant deterrent as well. Instead of imposing constraints on both sides, it has been used as leverage in favor of a less dependent state and aggravating a sense of insecurity to the other.

As a result, the current peace between China and Japan is probably attributable more to geo-strategic balance of power than to the consequences of disrupting economic interdependence. Since the structure of asymmetrical economic interdependence between the two has endowed China with the upper hand, without the US deterrence, a military clash would not be incomprehensible.

If asymmetrical economic interdependence has no credible impact on pacifying conflict between two nations, what does it mean for Taiwan’s national security?

While some of Taiwan’s media outlets are busy gloating over Japan’s economic losses due to China’s reprisal tactics, Taiwanese may be better served by more cautiously contemplating the structure of cross-strait economic relations.

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