Future of Australia Japan relationship

Prime Minister Scott Morrison’s trip to Japan in November 2020 for a historic summit deepened a relationship with Japan that is Australia’s strategic anchor in Asia — his sole official trip overseas in close to 19 months. The most important geopolitical, economic and security fault lines in the world run through Australia’s and Japan’s own backyard.Australia’s relationship with Japan has never been closer, and Japan is of growing importance to Australia. The world’s third largest economy, it is Australia’s second largest source of foreign investment and third largest trading partner — having been second until commodity exports fell last year.

The Special Strategic Partnership between the two countries rests on deep economic complementarity, shared strategic interests, and deepening trust and familiarity.But the Japan relationship must be reimagined to cope with accelerating economic, environmental and social changes in both countries and a dramatically changing geopolitical environment. Japan must be embraced as a most favoured partner to deliver on its potential to help deal with these challenges.

There is no room for national complacency about how ready the relationship is to serve this purpose. In addition to the transformation of the economic relationship, much about the region’s direction is yet to be negotiated and is too uncertain to take the present-day congruence of strategic outlooks between Japan and Australia for granted. The active, vital task of reimagination must be grasped by Canberra and Tokyo now.

Japan is Australia’s second largest trading partner with $88.5 billion in two way goods and services trade that accounts for roughly 10 percent of Australia’s total trade. Japan is the second largest source of foreign direct investment in Australia, creating jobs, trade links and increasing asset values. Many famous Japanese brands sold in Australia are shipped from Australia’s largest trading partner, China, and Japanese businesses in Australia sell actively into the Chinese market.

Australia matters for Japan by underpinning its economic security as the supplier of close to two thirds of its resource imports like iron ore and a quarter of its energy imports, by far the largest single source of these strategic raw materials. Japan relies on imports for almost all its resource supplies and 90 percent of its energy needs. As Japan shifts its energy mix away from oil to gas, Australia has become strategically more important to Japan compared to the Middle East.

Already there is rapidly growing cooperation in hydrogen energy and the expansion of renewable energy in Japan is an opportunity for Australia to become a more, not less important energy partner because of its huge natural endowments.

This bilateral relationship will be important for recovery from the worst crisis we have experienced since the two countries were at war 75 years ago. The progress that’s been made in building trust and a deep interdependence from complementarity and far-sighted leadership since then is now a source of stability in Asia.

Japan and Australia share a strong interest in managing US–China strategic competition, managing the rise of China, maintaining an open, rules-based order, pushing back against a US retreat from multilateralism, preserving regional stability and assisting regional recovery from the Covid-19 pandemic. Japan’s partnership with Australia will be key to creating a region that welcomes a particular form of Chinese rise: one that does not abandon but helps strengthen multilateralism, prosperity and security. The virtual summit will limit the frank exchanges possible on what to do about the other superpower, the United States. That will be in the minds of both leaders as they search for a way to maintain US engagement that contributes to stability rather than undermines it. The challenge is to create a region that enmeshes the United States into mixed-interest outcomes, including positive-sum economic exchange, and disincentivises the US inclination towards unilateral or bilateral action. That will only be achieved via broader collective action especially with other partners including China within the region.

The energy trade underpinning the two countries’ growing security relationship is already ebbing as Japan turns to decarbonisation of its economy. The shared strategic approach to China and the rise of global protectionism — notably in the United States and Europe — makes a far closer political, cultural relationship essential to both nations.

Australia, Japan and the region face a rising and more assertive China and an increasingly inward-looking United States that no longer commands economic or political primacy in Asia.

The US alliance framework remains the bedrock of Australian, Japanese and regional security and stability. The Quad that includes India alongside Australia, Japan and the United States reinforces that. But it is through open economic engagement that Australia needs to entrench US interests in Asia where US policies have been less supportive of the multilateral rules-based system. Japan shares those interests and brings serious economic heft to the task. Australia’s experience in the face of Chinese trade coercion demonstrates to the world that the open and contestable markets that the multilateral system helps to guarantee significantly blunt the effect of intervening in markets for political or economic gain because it offers alternative markets and suppliers.

The multilateral trading system is a vital strategic and security interest for Australia and Japan. It is also a crucial element in comprehensive regional security that integrates national security, economic and environmental sustainability objectives. This is the agenda to which the two countries must persuade their partners in the region, including China.

Today’s thriving Australia–Japan relationship cannot be sustained and elevated without substantial strategic investment from Australia. The old complementarities in fossil fuel-based energy and raw materials trade will not sustain the relationship as it has done in the past.

It is true that billions of dollars of Japanese investment now seek opportunities in hydrogen and renewables in Australia. That is the promise. Working closely with Japan, one of the world’s largest energy importers, will bring technology and investment to Australia’s trade and economic transformation. But that won’t happen without substantial national investment and joint national strategies to encourage and facilitate the massive transition in our trade that needs to take place to encourage it. The challenge requires a joint Australia–Japan Energy Initiative that combines government, industry, experts and stakeholder groups to accelerate and facilitate the energy transition needed in our trade.