[Future Vision Series on Japan-Korea Cooperation] ⑦ The Increasingly Unstable Global Economy and the Possibilities for Japan-Korea Cooperation

I. Introduction

Despite the relatively late institutionalization of international relations in East Asia compared to regions like Europe, the area has experienced deepening economic interdependence. Even after the global financial crisis, Asian countries, led by China, have played a driving role in the global economy, leading to continued deepening of economic relations within the Asia-Pacific region. In other words, while political rivalries exist, economic interdependence has contributed to stability in this region. However, the confrontation between the two economic giants, the United States and China, and the instability of supply chains due to the spread of COVID-19 are impacting not only the global economy but also the economic interdependence within this region. Furthermore, Russia's invasion of Ukraine has led to the imposition of economic sanctions on Russia, causing a contraction of the global economy, and its impact on this region is also a cause for concern (IMF 2022). How are the recent changes in the geopolitical landscape of these countries affecting international relations in East Asia?

The US-China conflict has so far altered international relations in East Asia in two ways. First, the economic powers, the United States and China, are engaged in a confrontation that links politics (security) and economics not only in economic terms but also in diplomatic relations. In East Asia, economic interdependence has deepened, making economic ties closer year by year, including among ASEAN countries. In particular, US-China economic relations have tightened with the rise of China, but this has also led to economic friction between the two countries. Initially, this friction was considered similar to the economic friction that occurred between Japan and the United States after the 1970s, and it was expected that the confrontation would be managed as an economic issue. This is because, in East Asia, economic relations have traditionally progressed based on the 'wisdom' of separating the management of economic relations from the management of security issues.[1] This 'wisdom' allowed for the avoidance of disruptions to economic relations.

However, the recent US-China confrontation has gone beyond mere economic friction and has reached a stage where political confrontation constrains the economy by linking economics with security (politics). In the United States, this trend became prominent starting with the Trump administration's increase in tariffs on steel and aluminum imports for security reasons (Drezner 2019; Farrell and Newman 2019). The Biden administration has not changed this policy. China has also taken retaliatory measures against the United States and has notably implemented policies that restrict economic relations with countries like South Korea and Australia for political reasons.[2]

Second, in the context of the US-China conflict, countries like South Korea, Japan, and ASEAN are increasingly likely to face a dilemma in their relations with both the US and China. South Korea and Japan, in particular, are allies of the United States and have close economic ties with both the US and China. Consequently, as the conflict intensifies, the diplomatic dilemma of choosing which country's relationship to prioritize grows. For South Korea, the issue surrounding the deployment of the THAAD system became a case that highlighted this diplomatic dilemma, as prioritizing the security relationship with the United States led to a deterioration of economic relations with China.

Amidst these changes brought about by the US-China conflict, can Japan and South Korea find possibilities for cooperation? As interdependence deepens in East Asia, countries have come to perceive economic interests as 'common interests,' and economics has been at the center of cooperation in Japan-Korea relations as well (Abe Makoto 2015). However, current Japan-Korea relations are only just beginning to show signs of improvement after reaching a 'post-war low.' Can we expect economics to control the deterioration of political relations?

This paper will first examine the recent state of economic interdependence among Japan, the US, South Korea, and China, and then consider the impact of the US-China confrontation (or COVID-19) on the external economic relations of Japan and South Korea. Concurrently, it will explore the potential for Japan-Korea cooperation, drawing on the observation that the US-China conflict is promoting the establishment of regional multilateral frameworks.

II. The State of Economic Relations Among Japan, South Korea, the US, and China

1. Japan-South Korea Economic Relations: Weakening Bilateral Ties

How have economic relations, which have constituted the main part of Japan-South Korea cooperation, evolved? First, let us provide an overview of economic relations between Japan and South Korea in terms of trade and investment.

1) Trade Relations

The share of Japan in South Korea's imports and exports has been steadily declining over the past 20 years. In particular, the proportion of imports from Japan in South Korea's total imports has decreased since 2004, and the import value has been declining since peaking in 2011. The export value has also been declining since peaking in 2011. As a trading partner for South Korea, Japan has fallen from second place in exports and imports (2000) to fifth in exports and third in imports (2021). This indicates that while South Korea's total trade volume has been steadily increasing, trade with Japan has not grown.

[Figure 1-1] Japan's Exports (Unit: Billion USD)

[Figure 1-2] Japan's Imports (Unit: Billion USD)

Source: IMF 2022

Meanwhile, Japan's exports to and imports from South Korea have also not increased recently. While South Korea's share in Japan's total trade remains stagnant, it has fallen from third place in exports (2020) and third place in imports (2000) to fifth place (2020) as a trading partner.

[Figure 2-1] South Korea's Exports (Unit: Billion USD)

[Figure 2-2] South Korea's Imports (Unit: Billion USD)

Source: IMF 2022

As shown above, while South Korea has increased its trade dependence and grown through the conclusion of numerous Free Trade Agreements (FTAs), Japan's importance in trade has relatively declined.

Furthermore, changes in South Korea's industrial structure have also transformed trade relations. As South Korea has developed capital-intensive industries since the 1990s, with semiconductors growing rapidly since the 1980s, there has been increased competition between products manufactured in Japan and South Korea. Consequently, Japan-South Korea trade relations shifted from a 'complementary' relationship to a 'competitive' one in the 2000s, as trade patterns in products and markets between the two countries developed similarly (Abe Makoto 2019). Although South Korea significantly increased its exports, its reliance on imports from Japan for intermediate and capital goods needed for export production led to a growing trade deficit with Japan, which became a problem in South Korea and hindered the development of trade relations between the two countries.[3]

Moreover, in July 2019, Japan strengthened export controls on semiconductor materials to South Korea for security reasons, escalating the conflict with South Korea in response (Ministry of Economy, Trade and Industry 2019).

2) Investment Relations

Direct investment from Japan to South Korea has fluctuated but became active after the foreign exchange crisis, as the South Korean government actively pursued foreign capital introduction policies when facing the crisis. Joint ventures between Japanese and South Korean companies increased. Furthermore, rapid yen appreciation after the global financial crisis led to an increase in foreign direct investment. However, it began to decline after peaking in 2012 (Hyakumoto Kazuhiro 2015).

[Figure 3] Japan's Outward Direct Investment (Unit: Billion USD)

Source: IMF 2022

In addition, South Korea's outward direct investment reached record highs for five consecutive years starting in 2015, but its direct investment in Japan has fluctuated, decreasing in 2019 compared to the previous year. In 2020, due to the impact of the COVID-19 pandemic, outward direct investment decreased for the first time in six years. While investment in Japan increased, this rise was attributed to a surge in real estate investment (JETRO 2021a).

[Figure 4] South Korea's Outward Direct Investment (Unit: Billion USD)

Source: IMF 2022

As indicated above, it cannot be said that economic relations between Japan and South Korea have become closer in terms of direct investment.

2. Japan-South Korea Relations with the US and China: Increasing Closeness

Next, let us examine the economic relations between Japan and South Korea and between the US and China, which are currently in conflict.

1) Japan's Relations with the US and China

Until 2008, the United States was Japan's largest export market. However, since 2009, China has become an equally important export destination. In 2020, China (22.1%) was the largest export market, followed by the United States (18.4%). For imports, the United States was the largest import partner until 2001, but since 2002, China has been the largest. In 2020, China (25.7%) accounted for more than double the share of the United States (11.0%). The proportion of China in Japan's total trade has reached an all-time high, indicating its increasing importance.

The largest destination for direct investment is the United States, and investment in China has been declining since 2020. Despite the COVID-19 pandemic, China's domestic direct investment has reached record highs, but Japan's investment in China is on a downward trend. On the other hand, Japan is the largest source of investment in the United States as of 2019 (JETRO 2019). In other words, from Japan's perspective, the importance of the United States in terms of direct investment has not changed, and the US-Japan relationship remains close.

2) South Korea's Relations with the US and China

The position of China in South Korea's external economic relations has been growing year by year. South Korea's trade volume decreased year-on-year in 2009 due to the impact of the global financial crisis but recovered rapidly thereafter. During this recovery, exports to China, the largest export destination since 2003, continued to expand, and in 2009, China's share of South Korea's total exports reached approximately 24%, significantly exceeding the combined total of the United States (second place) and Japan (third place) (JETRO 2009). The share of China in trade has continued to increase since then.

In terms of domestic direct investment, the United States is the largest destination, accounting for one-quarter of the total in 2020. Although South Korea's outward direct investment, which had been on an increasing trend since 2015, decreased year-on-year in 2020, the United States continues to hold the largest share (approximately 40%) as an investment destination. In other words, the importance of the United States in terms of direct investment has not changed for South Korea either.

As observed above, while economic relations between Japan and South Korea have not strengthened in terms of trade and investment, economic relations between Japan and the US, and between South Korea and the US, have been intensifying. In particular, the importance of economic relations with China is very high for both Japan and South Korea in the trade sector. In this context, the deepening US-China conflict, which links economics and security, is increasing the likelihood of a dilemma for the foreign policy of both Japan and South Korea, forcing them to prioritize either security or economics.

3) The Advancement of Global Value Chains and the US-China Confrontation

The economic interdependence related to trade and investment is changing not only quantitatively but also qualitatively. In particular, international division of labor has expanded into Global Value Chains (GVCs) due to the deepening of horizontal supply chains driven by advancements in information technology and increased liberalization through FTAs. GVCs have been progressing since the 1990s and, after a temporary stagnation following the global financial crisis, have come to play a significant role in the global economy due to advancements in ICT (World Trade Organization 2019; Inomata Tetsushi 2019). However, recent events such as natural disasters, COVID-19, and the unilateral imposition of regulations by the US and China have raised concerns that over-reliance on specific regions, countries, or companies within GVCs increases political risks and vulnerabilities.

Furthermore, during the Trump administration, as US-China economic conflict intensified, tariffs on steel and aluminum imports were increased under Section 232 of the Trade Expansion Act for security reasons. Moreover, policies were implemented to exclude Chinese ICT products and services, deemed security risks, from GVCs, targeting companies like Huawei. With the strengthening of investment and export regulations from a security perspective, the re-evaluation of GVCs has become a pressing issue (USTR 2018; Kennedy and Tan 2020). In response, China has also enacted measures such as revising its list of export-prohibited/restricted technologies (2020), the Export Control Law (2020), the Measures for the Security Review of Foreign Investments (2021), and the Anti-Foreign Sanctions Law (2021). China's industrial policy, 'Made in China 2025,' announced in 2015, aims to upgrade its manufacturing sector. This is intended to increase value addition in GVCs through the advancement of high-tech industries, prompting the US to strengthen its vigilance (Miura Aritsushi 2019; JETRO 2019). In the globalized world economy, GVCs have been considered a prime example of deepening economic interdependence, fostering economic growth and close relationships with other countries. However, the US-China conflict has further pressured the re-evaluation of GVCs. The US policy towards China established during the Trump administration has not changed under the Biden administration, and given domestic political considerations in the US, it is unlikely to change in the near future.

The current international division of labor structure, as seen in GVCs, is horizontal. Therefore, the US policy of excluding Chinese companies for security reasons inevitably affects not only American companies but also companies outside of China, including Japanese and South Korean firms, that are integrated into GVCs containing Chinese products (Kennedy and Tan 2020). While China has served as a manufacturing production base, how has the US-China conflict impacted manufacturing supply chains? Companies handling Chinese products subject to US retaliatory tariffs, whether Chinese or foreign, face difficulties exporting from China to the US. This may lead them to consider relocating production from China to other countries or regions.

However, even before the US-China confrontation, production bases were already shifting from China due to recent increases in labor costs. China's wage levels quadrupled over the decade up to 2016. Consequently, companies were increasingly moving their production bases to Southeast Asia, particularly Vietnam, Thailand, and Indonesia, which have abundant and cheaper labor compared to China. This trend was observed not only among foreign companies but also among Chinese companies. Therefore, the US-China conflict has the potential to accelerate the relocation of production bases from China, a trend that was already occurring (Miura Aritsushi 2019; JETRO 2019). Indeed, in the first half of 2021, Japan's direct investment in ASEAN quadrupled compared to its investment in China, and a similar trend was observed for South Korean and US companies (JETRO 2021b).

Despite the escalating conflict, US-China trade increased in 2019 and 2020, suggesting that the US-China conflict has not significantly impacted their bilateral trade relations. The future impact on Japanese and South Korean companies integrated into GVCs from the US exclusion of Chinese companies like Huawei remains unclear at this point, especially given the uncertainty surrounding the ongoing developments of Russia's invasion of Ukraine, which began in February 2022, in addition to the effects of COVID-19. At least in terms of direct investment, there is a tendency for Japanese and South Korean companies affected by the US-China conflict to relocate their production bases to ASEAN countries or the United States. However, while there is a discernible trend for Japanese and South Korean companies to reduce their dependence on China, there is currently no indication that the governments of Japan and South Korea are prioritizing their respective economic relations.

III. Engagement in Regional Economic Institutions in East Asia

While the actual state of trade and investment reveals a weakening of relations between Japan and South Korea, let us next examine the relationship between Japan and South Korea in the formation of institutions in the Asia-Pacific region.

1. Current Status of FTAs

In the Asia-Pacific region, multilateral economic frameworks are being sought recently, and the US-China confrontation has also influenced the formation of these systems. Although the Asia-Pacific Economic Cooperation (APEC) was established as a multilateral economic cooperation system in the late 1980s, countries have since concluded bilateral Free Trade Agreements (FTAs) outside the ASEAN framework. While the pursuit of FTAs by the governments of South Korea and Japan in the Asia-Pacific region was relatively slow, South Korea, in particular, has shifted to an active stance on FTAs in response to repeated economic crises. Recently, it has concluded FTAs with major countries and regions such as the European Union (2011), the United States (2012), China (2015), Indonesia (2020), and the United Kingdom (2021), thereby building an FTA network. As of 2021, South Korea has brought 17 FTAs into effect, with countries with which FTAs have been concluded accounting for 72% of its total trade volume. Japan has recently concluded FTAs with India (2011), Australia (2015), the European Union (2019), and the United Kingdom (2021), but unlike South Korea, it has not concluded FTAs with either the US or China.

Although both South Korea and Japan have adopted proactive policies towards FTAs, negotiations for a Korea-Japan FTA have been stalled since 2004. While negotiations for a trilateral FTA among South Korea, China, and Japan, in which both countries are participating, have not progressed, China has pressured South Korea to conclude a Korea-China FTA, and the United States urged South Korea to participate in the Trans-Pacific Partnership (TPP), based on the Korea-US FTA. Faced with requests from both the US and China, with whom they are in security opposition, the South Korean government was forced to prioritize its negotiations. South Korea adopted a policy of prioritizing negotiations with China while also pursuing bilateral FTA negotiations with TPP participating countries. Consequently, along with the Korea-China FTA, South Korea concluded bilateral FTAs with TPP participating countries excluding Japan and Mexico, thereby deepening its tilt towards China. In contrast, in Korea-Japan relations, there is no institutional framework for economic cooperation, as evidenced by the absence of an FTA.

Has the engagement of South Korea and Japan in multilateral FTAs changed recently? Firstly, the TPP, led by the United States, was a multilateral FTA with a strong anti-China dimension, as former President Obama stated that the leadership in establishing an economic system in the Asia-Pacific region could not be left to China. Notably, the TPP is characterized by its aim for a high level of liberalization, leading to the Free Trade Area of the Asia-Pacific (FTAAP). However, in 2017, the Trump administration withdrew from the TPP, turning its back on multilateral FTAs in the Asia-Pacific region. Following the US withdrawal, the TPP was passed in 2018 by the remaining 11 countries under the leadership of the Japanese government as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The US withdrawal from the TPP has influenced the competition for leadership in institutionalizing multilateral systems in the Asia-Pacific region. Firstly, although the Biden administration advocates a return to multilateralism, it has stated that there will be no return to the TPP for the time being and has expressed its intention to engage in a different multilateral cooperation structure. The Biden administration is showing a willingness to lead a different system to replace the TPP, for which there is strong domestic opposition. Secondly, both Taiwan and China applied to join the CPTPP in September 2020. Japan aims to build an FTAAP among the 21 APEC member economies through the TPP and the Regional Comprehensive Economic Partnership (RCEP). With the US not returning to the TPP, negotiating CPTPP accession with China and Taiwan has become a challenge for Japan.

Next is the trend of RCEP, a multilateral framework that, along with the TPP, leads to FTAAP. Although RCEP negotiations started later than the TPP, they accelerated after the US withdrawal from the TPP, and RCEP entered into force in 2022 among member states excluding India. With the entry into force of RCEP, South Korea and Japan have, for the first time, concluded an FTA within the framework of a multilateral FTA. As a result, the proportion of tariff-free items for manufactured goods in South Korea has increased from 19% to 92%. Furthermore, the tariff elimination rate for Japan's exports to South Korea stands at 81%. However, the tariff elimination rate for agricultural, forestry, and fishery products, which was a key issue, remains low (Ministry of Foreign Affairs 2022). The entry into force of RCEP has established an institutional structure for liberalization in Korea-Japan trade.

Regarding multilateral FTAs, Japan participates in both CPTPP and RCEP, while South Korea and China have not participated in TPP negotiations. However, in addition to China, South Korea has also expressed interest in the CPTPP. How to build an FTAAP from CPTPP and RCEP is a challenge for both Japan and South Korea.

2. Current Status of Financial Cooperation

In the financial sector, South Korea and Japan have cooperated since the Asian financial crisis in terms of stabilizing exchange rates and resolving balance of payments issues (Takayasu Yuichi 2015). In 2000, the Chiang Mai Initiative (CMI), a network of bilateral currency swap agreements, was established under the ASEAN+3 agreement. In addition to this, a central bank swap agreement between South Korea and Japan (2005) and a one-year swap agreement between the Ministry of Finance of Japan and the Bank of Korea (2011) were established. In 2010, the Chiang Mai Initiative Multilateralization (CMIM) was realized with the addition of Brunei, Cambodia, Laos, Myanmar, and Vietnam. However, as the financial markets of both South Korea and Japan stabilized after 2012, the swap agreements were sequentially terminated, rendering the framework of cooperation through bilateral swap agreements unnecessary. Meanwhile, the multilateral CMIM has undergone revisions and, in 2021, amendments were made to strengthen financial cooperation in preparation for the impact of COVID-19 on the regional economy at the ASEAN+3 Finance Ministers’ and Central Bank Governors’ Meeting (ASEAN 2021).

As described above, it can be said that both South Korea and Japan are currently forming cooperative relationships not through bilateral means but by participating in multilateral regional systems in areas such as FTAs and financial cooperation. The emphasis on building regional systems not only in South Korea and Japan but also in ASEAN countries is presumed to stem from the intention to reduce the risks associated with US-China relations, which arise from the competition for leadership in establishing systems in the Asia-Pacific region, through a structural approach via these systems, in addition to responding to the impacts of the global financial crisis and the spread of COVID-19.

IV. New Multilateral Systems in the Asia-Pacific Region: Possibilities for Korea-Japan Cooperation

1. Institutionalization of Digital Trade

Although the United States has withdrawn from the TPP, the Biden administration announced in October 2021 the establishment of a new system to replace the TPP. This is the concept of the Indo-Pacific Economic Framework for Prosperity (IPEF). The Secretary of Commerce stated his intention to promote a regional multilateral framework by securing the participation of countries that share objectives with the United States in areas such as infrastructure, the digital economy, and resilient supply chains. In particular, the United States has long aimed to form a multilateral framework in the Asia-Pacific region focused on the digital economy, and concluded a digital trade agreement between the US and Japan in 2019. In this region, the Digital Economy Partnership Agreement (DEPA) was established in 2020 between Singapore, New Zealand, and Chile. As China applied to join DEPA in November 2021, active engagement with Singapore, a central country in DEPA, is underway. The US's active involvement in the digital economy can be attributed to the increasing importance of digital trade in the future global economy, the ease of promotion due to its consistency with the US domestic economy unlike manufacturing, and the possibility of policy differentiation from China in aspects such as personal data protection. Furthermore, since the institutionalization of digital trade has not yet been established within the WTO, leading the institutionalization of digital trade on a multilateral basis will have a decisive effect on the future institutionalization of digital trade.

In addition to DEPA, Singapore has concluded digital trade agreements with Australia and the United Kingdom. South Korea began negotiations to join DEPA in 2021 and signed the Korea-Singapore Digital Partnership Agreement (KSDPA) in December. The US-Japan Digital Trade Agreement aims for a high level of institutionalization and it has been agreed that they will play a leading role in creating international institutions.

2. Quad (Cooperation among the US, Japan, Australia, and India)

The Quadrilateral Security Dialogue (Quad) is a framework of four countries (Japan, the United States, Australia, and India) that respect values such as freedom, democracy, and the rule of law, as advocated by the Japanese government's proposal of 'Free and Open Indo-Pacific (FOIP)' in 2016. The first summit meeting was held in 2021. Amidst the US-China conflict, the Biden administration places importance on the role of the Quad. At the second summit in September 2021, cooperation with ASEAN, cooperation in vaccine distribution for COVID-19, and cooperation in areas such as new technologies, quality infrastructure, cybersecurity, disaster relief, space, clean energy, and people-to-people exchanges were confirmed (Ministry of Foreign Affairs of Japan 2021). The Quad framework is currently loose and focuses on non-military regional cooperation in the Asia-Pacific. While Japan and Australia have alliance relationships with the United States, India is a non-aligned country with close economic ties with China, thus the Quad is positioning itself as a framework for non-military cooperation. Whether the Quad will pursue institutionalization in the future and expand its framework to include South Korea or ASEAN remains a future challenge.

3. Progress of the Indo-Pacific Economic Framework (IPEF) Initiative

The Biden administration announced the concept of the Indo-Pacific Economic Framework (IPEF) as a new economic structure to replace the TPP. Subsequently, after summit meetings with Japan, ASEAN countries, and South Korea, the launch of IPEF was announced at the US-Japan summit in Tokyo on May 23. The IPEF will include 14 countries: the United States, Japan, South Korea, seven ASEAN countries (Indonesia, Singapore, Malaysia, Thailand, the Philippines, Vietnam, Brunei), Australia, New Zealand, India, and Fiji. The focus areas are trade, supply chains, clean energy/decarbonization/infrastructure, and tax/anti-corruption. The US, considering its domestic political situation, has taken a passive stance on market opening, and tariff reductions are not included. Furthermore, participating countries can choose the areas for negotiation. As mentioned above, in digital trade, high-level institutional formation is being sought by countries such as Japan and Singapore.

Negotiations began with the first ministerial meeting held online on July 26 and 27 (Office of the United States Trade Representative 2022). Most participating countries, including Japan and South Korea, are highly economically dependent on China and are concerned about the potential shift of political and diplomatic risks with China into economic relations. They define the IPEF framework as a hedge against China. The challenge ahead is how this framework will materialize into concrete institutions, but Japan and South Korea can play a role in balancing between the US and China while completing coordination among the ASEAN countries.

V. Conclusion

During the Moon Jae-in administration, issues such as the comfort women, forced labor, and Japan's export restrictions for security reasons led to conflicts between South Korea and Japan, and summit talks were not held, resulting in the worst relationship since the post-war period. Despite being neighboring countries allied with the United States in terms of security, it became difficult to find an answer on how to restore the cooperative relationship. As the Asia-Pacific region developed economically, cooperation between South Korea and Japan centered on economic collaboration. However, as South Korea's economic growth progressed and its economic ties with China deepened, the economic importance of the two countries diminished relative to each other, leading to a shift towards a competitive relationship. The US-China conflict and the spread of COVID-19 have linked security and economy, making it difficult to separate politics and economics between the US and China, thus creating a diplomatic dilemma for both South Korea and Japan. However, despite facing similar dilemmas, the deterioration of political and diplomatic relations, coupled with the weakening of economic importance, has limited the promotion of cooperation between the two countries, as evidenced by their FTA policies.

With the international order being shaken by Russia's invasion of Ukraine and China clearly supporting Russia, the US-China confrontation may intensify, potentially escalating the dilemma for South Korea and Japan. While economic relations with China are important for both South Korea and Japan, they always carry political risks, necessitating a reduction of this dilemma. To this end, it is crucial to avoid becoming deeply entangled in the US-China conflict and to reconsider economic relationships and supply chains that are excessively dependent on China. In this regard, it is desirable for both South Korea and Japan to participate in building multilateral cooperation frameworks in the Asia-Pacific region.

As the US-China confrontation intensifies, both countries have come to place importance on building multilateral systems in the Asia-Pacific region. Although the US withdrew from the TPP under the Trump administration, the Biden administration has returned to a policy of emphasizing multilateral frameworks, and China has expedited the conclusion of RCEP and applied for accession to CPTPP and DEPA. The US, having withdrawn from the TPP, is actively pursuing new multilateral framework initiatives (such as digital trade agreements, the Quad, and multi-sector cooperation within IPEF) with countries that share its values. South Korea and Japan's participation in these multilateral frameworks stems from their intention to contribute to solving challenges and ensuring stability in the Asia-Pacific region while simultaneously avoiding the costs associated with the US-China confrontation. Currently, only RCEP exists, but if China is also open to building multilateral frameworks, it could lead to maintaining relations with China based on high-level rule-making. Both countries have strengths in cooperating on the institutionalization of digital trade and providing quality infrastructure to ASEAN countries.

President Yoon Suk-yeol is pursuing participation in IPEF and the Quad, and is also addressing pending issues in Korea-Japan relations, including the forced labor issue, increasing the possibility of improving relations. For South Korea and Japan to participate in and cooperate on building multilateral frameworks in areas contributing to solving challenges in the Asia-Pacific region will not only contribute to the stability of the region but also lead to a reduction of their dilemma in the US-China conflict.■

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[1] In East Asia, countries have pursued a separation of security and economy, aiming to promote economic benefits.

[2] When South Korea deployed the Terminal High Altitude Area Defense (THAAD) system in 2017, China imposed import restrictions on South Korea, obstructed the business operations of Korean companies, and implemented travel restrictions to Korea. Furthermore, in response to Australia's request for an investigation into the origins of COVID-19 in 2020, China increased tariffs on Australian goods and implemented import restrictions.

[3] The deficit has been shrinking since the 2010s (Okuda Satoshi 2015).

■ Author: Yoshiko Kojo Professor of International Political Economy, Department of International Politics, Aoyama Gakuin University; Professor Emeritus, The University of Tokyo. Her main research areas are international relations and international political economy. She previously served as an Assistant Professor at the Faculty of Law, Kokugakuin University, and as a Professor at the Graduate School of Arts and Sciences, The University of Tokyo. She holds a B.A. from the College of Arts and Sciences, The University of Tokyo, an M.A. from the Graduate School of Social Sciences, The University of Tokyo, and a Ph.D. from the Department of Government, Harvard University. Her publications include Taming Japan’s Deflation: The Debate Over Unconventional Monetary Policy (2018, co-authored).

■ Editor: Park Han-soo_EAI Research Fellow

Inquiries: 02-2277-1683 (ext. 204) hspark@eai.or.kr

Attachment: [Future Vision for Japan-Korea Cooperation] 7. Global Economic Instability and the Possibility of Japan-Korea Cooperation.pdf