Speaker 1: Hello, Stephanomics. Here the podcast that brings you the global economy,
Speaker 1: and this week we're joining world leaders in Japan, virtually
Speaker 1: at least as they head to the G seven Heads
Speaker 1: of Government summit in Hiroshima. It wasn't so long ago
Speaker 1: that people spoke wistfully about getting rid of the G
Speaker 1: seven altogether. Having just the US, Canada, Japan and a
Speaker 1: bunch of European countries sitting around the table just didn't
Speaker 1: feel like a representative sample of the global economy. But
Speaker 1: today a lot of extra countries get invited. Plus everything
Speaker 1: going on in the world has left the G seven
Speaker 1: needing a safe space. The change in geopolitics and economics
Speaker 1: is particularly evident in Asia, and perhaps nowhere is it
Speaker 1: more challenging to policymakers than in Japan. I'm getting into
Speaker 1: all of that in a few minutes with distinguished thinkers
Speaker 1: and authors Richard McGregor and Rory metcalf. But first, here's
Speaker 1: our economy and Government reporter Yoshiaki Nohara in Hiroshima, Mokdo.
Speaker 2: It's August sixth, twenty twenty two. The clock hits eight
Speaker 2: fifteen in the morning, precisely seventy seven years ago. This
Speaker 2: time the Wall's first nuclear bomb exploded. Here in Hiroshima, Japan,
Speaker 2: I'm standing among hundreds of people observing a moment of
Speaker 2: silence for the victims. Japanese Prime Minister Formio Shida steps
Speaker 2: forward and dedicates a wreath.
Speaker 3: We must not repeat the calamity on that day seventy
Speaker 3: seven years ago. This is our nation's responsibility as the
Speaker 3: only even hit by an atomic bomb, and it's my
Speaker 3: preach as Prime Minister hum Hiroshima.
Speaker 2: This coming weekend, Hiroshima will be hosting a G seven summit,
Speaker 2: and Chida will reigrate his pledge for peace. But in
Speaker 2: the background stakes are higher than ever. Russia is escalating
Speaker 2: nuclear threats in Ukraine, North Korea keeps firing missiles, and
Speaker 2: China is putting greater pressure on Taiwan. They are all
Speaker 2: Japan's neighbors.
Speaker 4: Japanese Prime Minister Kishida FuMO ordered the Defense finance ministers
Speaker 4: on December fifth to secure forty three trillion yen for
Speaker 4: defense spending from fest of All twenty twenty three.
Speaker 2: Ironically, peace is often preserved through the supply of heavy weapons.
Speaker 2: Kishida's ordered a historic increase in defense spending. Japan's military
Speaker 2: budget is now said to be two percent of its
Speaker 2: economic output. That would rank third largest in the world,
Speaker 2: only after the US and China.
Speaker 4: Japan had said multiple times this year that it will
Speaker 4: drastically strengthen defense capable.
Speaker 2: NOWA is counting on private companies to make sophisticated weapons
Speaker 2: to arm Japan's self defense poces, and the key weapons
Speaker 2: factory is located in, of all places, Hiroshima. The Japan
Speaker 2: Still Works Hiroshima plant sprawls over a flat plain on
Speaker 2: eastern edge of the city. The company let me enter
Speaker 2: the factory and watch them making artilleries and canons, but
Speaker 2: they wouldn't let me use any sound or take any photos.
Speaker 2: It's a secret operation here and even locals are dimly
Speaker 2: aware of what happens inside. So I would just describe
Speaker 2: what I saw. Jebre factory specializes in making activities. I
Speaker 2: saw bunch of cannons and guns. They would be loaded
Speaker 2: on warships and tanks. I looked into the barrel of
Speaker 2: a cannon. I saw spiral groups inside that will allow
Speaker 2: shells to spiral through the air in a stable trajectory
Speaker 2: and hit targets during the tour. The smell of machine
Speaker 2: oil hang in the air. There was a constant bus
Speaker 2: from cutting steel. Some beams supporting the ceiling were rusty,
Speaker 2: which wasn't surprising given the factory was built before World
Speaker 2: War Two. The local managers who gave me the tour
Speaker 2: said they never let a journalist in before. They all
Speaker 2: declined to be quoted. They said their families might be
Speaker 2: harassed with the nature of their work was publicized. After all,
Speaker 2: this is Hiroshima, the Wall's mecca for past fismen. But
Speaker 2: then I met Kato arigatomas the Chio. Kato was fifteen
Speaker 2: years old when she began working at the j stew
Speaker 2: factory in nineteen forty four. At her old girls school,
Speaker 2: students were forced to skip classes and work at factories
Speaker 2: while their fathers, brothers and uncles was sent to fight.
Speaker 2: Kato and her classmates pulled twelve hour shifts making bullets
Speaker 2: around the clock.
Speaker 3: That Couninotoman, it's a good letter.
Speaker 5: We were told all the Wifelome Elementary School that we
Speaker 5: shouldn't spare our lives in order to stop donation. We
Speaker 5: thought we must work hard for Japan. That was all
Speaker 5: we care about.
Speaker 2: Demo On August sixth, nineteen forty five, Kato took Adeo.
Speaker 2: Because the factory was closed for a routine power saving day,
Speaker 2: Kato and some friends planned to go swimming outside town.
Speaker 2: She was waiting for a train when the bomb hit up.
Speaker 2: She doesn't remember the blinding flash or deafening sound that
Speaker 2: other survivors would later recall. She just woke up on
Speaker 2: the ground, perhaps ten meters away from where she was standing,
Speaker 2: and found her two friends. One's face turned brown like
Speaker 2: a samber, the other's right arm was studied with shells
Speaker 2: of glass. They staggered toward a shelter where other survivors
Speaker 2: flooded in.
Speaker 5: The skin was killed off, all the while hanging from
Speaker 5: their fingernails. The three of us held all together and
Speaker 5: cry it were Chellish even in hell. I don't think
Speaker 5: it would be the horrible.
Speaker 6: Good Man and.
Speaker 2: The war ended soon afterwards, and Kato never returned to
Speaker 2: the factory, which stopped making weapons. In nineteen forty seven,
Speaker 2: Japan adapted a new constitution that the renownced war for
Speaker 2: good and pledged its armed forces wouldn't be maintained. Then
Speaker 2: the Korean and Cold Wars came about, threatening peace in
Speaker 2: the area. Jess w started making weapons again. The constitution
Speaker 2: remains the same even today. But in reality, Japan has
Speaker 2: built self defense forces, which is military, and companies have
Speaker 2: long made weapons for them. Now it's going to take
Speaker 2: a lot of work to get to parent's defense industry
Speaker 2: ready to meet Seer's goals. Many contractors have shattered defense
Speaker 2: operations in recent years. They can barely make ends meet
Speaker 2: with low profit margins in government contracts. They cannot export
Speaker 2: their products easily either, due to tight regulations. Defense ministry
Speaker 2: manager costchemets Motto told me he cannot keep track of
Speaker 2: how many are gone.
Speaker 6: There is not much profitability or possibility for expansion. That's
Speaker 6: why new players, investments, or resources aren't coming in. As
Speaker 6: a result, our technical strengths has weakened in our advantage
Speaker 6: is being threatened. That's the state of the defense industry.
Speaker 2: Shots were fired at Camp Kaitechi for self defense poces.
Speaker 2: The camp is just next to the js W factory.
Speaker 2: Soldiers who are training and preparing for the camp's seventy
Speaker 2: second anniversary. I struck a conversation with Koki Hiroka, a
Speaker 2: twenty one year old medic. Hiroka told me that people
Speaker 2: may be rullying for peace, but the officers still have
Speaker 2: to be ready for enemy attacks.
Speaker 6: I'd be lying if I say I'm not scared. But
Speaker 6: if we quit one after another, nobody will be left
Speaker 6: to protect Japan. I try to gether my courage. It's
Speaker 6: my duty to serve.
Speaker 2: On August sixth, last year, peace activists rallied along the
Speaker 2: main street in Hiroshma. They chanted against the Kishida's moves,
Speaker 2: which they considered as weakening the constitution and arming Japan.
Speaker 2: But Paul's are showing more people are favoring a booster
Speaker 2: to defense spending and gaining more military capability. Even Kato,
Speaker 2: who worked for js W as a girl, is becoming
Speaker 2: less idealistic. She is now ninety four. Every year on
Speaker 2: August sixth, she cries at the ceremony to commemorate the
Speaker 2: nearly seven hundred students and teachers from her school killed
Speaker 2: by the Bond. The idea of a rearmed Japan breaks
Speaker 2: her heart, but she also has no illusions about peace keeping.
Speaker 5: Has renounced to war. But if others are chance, Japan
Speaker 5: will have to protect.
Speaker 2: For now that place. Bell continues to talk in for
Speaker 2: Boomberg News, Am Yosha.
Speaker 1: Well, that was such a thoughtful and evocative piece there
Speaker 1: from Hiroshima by Yoshi Hara, and there's there's a lot
Speaker 1: of strands there that would be worth following up. And
Speaker 1: I'm going to talk to two experts now who could
Speaker 1: run away with any one of them. Richard McGregor is
Speaker 1: an Australian journalist, writer and author. He is currently working
Speaker 1: as a Senior Fellow at the Loewi Institute based in Sydney, Australia,
Speaker 1: and has written numerous extremely influential books on China, including
Speaker 1: The Party, Asia's Reckoning and more recently Sijinpink The Backlash.
Speaker 1: We also have Rory Metcalf, who has been head of
Speaker 1: the National Security College at the Australian's National University for
Speaker 1: a long time. He's also written a lot of influential books,
Speaker 1: including most recently Indo Pacific Empire, China America and The
Speaker 1: Contest for the World Pivotal Region. Well. One reason obviously
Speaker 1: we wanted to go to Hiroshima is that Prime Minister
Speaker 1: Kishida has himself chosen that as the location for this
Speaker 1: weekend's G seven Leader's Summit. Rory, there's clearly a message there.
Speaker 1: The symbolism is about the dangers of unrestrained geopolitical conflict,
Speaker 1: but the military build up in Hiroshima itself, which she
Speaker 1: talks about in that piece, you know, underscores that to
Speaker 1: a you've pieced, Japan now thinks you have to increase
Speaker 1: preparations for war. So, just stepping back a little, you know,
Speaker 1: how much of a change does this represent in Japan's strategy.
Speaker 7: So, Stephanie, it does seem to point to a dissonance
Speaker 7: in the way that Japan thinks and acts strategically in
Speaker 7: the world. But in fact this isn't so new, you know.
Speaker 7: For the past fifteen years, almost twenty years now, I
Speaker 7: think Japan has begun to emerge as a strategic actor
Speaker 7: in the Indo Pacific region. Indeed, the very idea of
Speaker 7: a connected Indo Pacific region which kind of enables countries
Speaker 7: like India and Japan to work together, or India in
Speaker 7: Australia or the Quad to work together, was driven in
Speaker 7: significant part by Japan, by Japanese leadership, by Prime Minister,
Speaker 7: the late Prime Minister Abe. I think it's really important
Speaker 7: to bear in mind that this is not the kind
Speaker 7: of militarization of Japan that the Chinese like to warn
Speaker 7: us all about. It's still relatively restrained, and it's really
Speaker 7: about Japan trying to adopt a defense posture that most countries,
Speaker 7: the most powerful countries in the world, would recognize as
Speaker 7: as being a pretty normal thing to do. But it
Speaker 7: is a big change for Japan, and it points to
Speaker 7: a Japan that's more sober and realistic about the realities
Speaker 7: of armed force in the world. So the lesson I
Speaker 7: draw is how well is Japan go to strike the
Speaker 7: new balance of diplomacy, deterrence and a I guess, more
Speaker 7: realistic effort at economic prosperity that reduces the risks that
Speaker 7: come with globalization and connectiveness.
Speaker 1: Richard, I guess I should We could go straight on
Speaker 1: from there. I mean, how realistic is that effort by Japan.
Speaker 8: Well, in some respects, you know, most of the attention
Speaker 8: on the you know, the Japanese efforts to rebuild its
Speaker 8: military focused on money. So in some ways raising the
Speaker 8: money is easy. Spending it is difficult for multiple reasons.
Speaker 8: You know, in post war Japan, the Ministry of the military,
Speaker 8: you know, self defense forces they're called, by the way,
Speaker 8: which tells you something. As the military in Japan has
Speaker 8: been a very low prestige and low profile institution, You
Speaker 8: rarely see Japanese military officers on the street in their
Speaker 8: uniform in Tokyo or elsewhere, and that's been quite deliberate
Speaker 8: because they didn't want to attract attention to themselves. The
Speaker 8: military inside Japan has really been seen more as a
Speaker 8: disaster relief organization rather than an organization which can really
Speaker 8: fight and win wars. So for all those reasons, the
Speaker 8: government might have lots of money to spend, but they're
Speaker 8: going to struggle to recruit people and train people and
Speaker 8: keep them. With a declining population and a still slightly
Speaker 8: growing economy, there's many more jobs on offer than people
Speaker 8: there are people to fill them. They're going to really
Speaker 8: struggle to actually fulfill the task that mister Kishiderra set
Speaker 8: for them, that is to build a much more modern military,
Speaker 8: a much more mobile military, and a military which is
Speaker 8: much more suited to the perilous strategic circumstances that Japan
Speaker 8: now finds itself in.
Speaker 1: Rory Richard's talked about sort of the very practical problems
Speaker 1: involved in this. I guess, as an economist, I look
Speaker 1: at a much more basic issue that even though the
Speaker 1: political approach, that geopolitical stance with respect to China may
Speaker 1: have changed significantly over the last ten to twenty years,
Speaker 1: if you by any measure, that economic connectedness of Japan
Speaker 1: and China, and indeed probably every country in the world's
Speaker 1: connectedness to China has increased. So how is it going
Speaker 1: to be possible to keep on to keep those two
Speaker 1: things operating on separate tracks.
Speaker 7: I think in the medium to long term it's probably
Speaker 7: not realistic to keep those on separate tracks, or to
Speaker 7: do both. Unless China changes, you know, unless China becomes
Speaker 7: a less risky or reckless or coercive force on the
Speaker 7: international stage, then something's going to have to give at
Speaker 7: some point. I'm not the economists in the room. It's
Speaker 7: important to distinguish trading relations and relationships and investment relationships
Speaker 7: for example, you know, going to the Australian experience with China.
Speaker 7: For example, of course, even during the ear of Chinese
Speaker 7: economic coercion or the phase of Chinese economic coersion against
Speaker 7: Australia over the past five years, you know, the trade
Speaker 7: relationship effectively grew, you know, signifally because of the price
Speaker 7: of iron ore and China's dependence on Australian iron or
Speaker 7: but the investment relationship was already going downhill and effectively
Speaker 7: went over a cliff and will be hard to rebuild.
Speaker 7: So I think we do need to look below the
Speaker 7: surface of the numbers. I think it would be interesting
Speaker 7: to understand in Japan, particularly how the business business community
Speaker 7: is thinking about investment in China, is thinking about the
Speaker 7: risks that come with becoming to entangle even things like
Speaker 7: the consular safety and welfare of their own staff and executives.
Speaker 7: And I think that's not only a Japan China story.
Speaker 7: That's a story for Australia, it's a story for Europe,
Speaker 7: of course, it's a story for the United States as well.
Speaker 7: I think the hardening of Japan's fence posture that we've seen,
Speaker 7: while that might be the pointy end of a more
Speaker 7: robust national security response to a dark strategic environment, it's
Speaker 7: not the only response. And I'd be surprised if there
Speaker 7: isn't thinking in the Japanese system about, you know, what
Speaker 7: does the future of the supply chains look like, what
Speaker 7: does the future of critical technologies look like? And a
Speaker 7: lot of that will be I think informed by the
Speaker 7: kind of de risking approach that we've at least heard
Speaker 7: Europeans speak about at a at a leadership level, although
Speaker 7: we may not be seeing it happening across the board
Speaker 7: among corporates yet.
Speaker 1: Well, actually, Richard, I was going to ask you, I mean,
Speaker 1: you do hear this language now of de risking the
Speaker 1: relationship with China around the world rather than decoupling, which
Speaker 1: sounds marvelous and I think, especially if you're a businessman
Speaker 1: who doesn't want to really completely untangle the supply chain
Speaker 1: with China, it sounds much better. But does it actually
Speaker 1: mean anything? Is it possible?
Speaker 8: Well, it's not quite pigh in the sky, but it's
Speaker 8: almost impossible for global economies to disentangle themselves from China.
Speaker 8: The good news, though, is that the same applies to
Speaker 8: China itself, because China can't disentangle itself either. Now, obviously
Speaker 8: China has been trying to do that for many years.
Speaker 8: They've got their own sort of policies, so called dual circulation,
Speaker 8: in other words, that they can de risk their own
Speaker 8: economy against the kinds of sanctions that America is pursuing
Speaker 8: against it right now. But I feel that the amount
Speaker 8: of decoupling or de risking that has taken place is
Speaker 8: pretty superficial compared to the depth of it. At the moment,
Speaker 8: it's the word buzzword on everybody's lips, but if you
Speaker 8: talk to business people in any detail, then it's just
Speaker 8: about impossible. And that this is in fact quite a
Speaker 8: positive thing, I would say in many respects, it can be.
Speaker 8: It's a negative thing to or rely on China, of course,
Speaker 8: but it's positive in as much as it restrains Chinese behavior.
Speaker 8: Because the entire global economy really goes through China, Japan, Taiwan,
Speaker 8: South Korea, to a lesser extent Southeast Asia. Any interruption
Speaker 8: to that has an immediate and dramatic effect on the
Speaker 8: global economy and on each economy individually. So I'm not
Speaker 8: quite sure how anybody can get out of China, and
Speaker 8: I hope that ultimately is a stabilizing factor in geopolitics
Speaker 8: because it affects China as well.
Speaker 1: For many of people listening who are sitting in the US,
Speaker 1: they do only see this, or we often will only
Speaker 1: see it through the US lens. So I think highlighting
Speaker 1: that there are now these other relationships and other strategic
Speaker 1: partnerships rising up is a good one. But Richard, I
Speaker 1: did notice twenty sixteen was also the last time that
Speaker 1: you had the G seven meetings, including the I think
Speaker 1: there was a foreign minister meeting in Hiroshima. Since then,
Speaker 1: you've had the Trump administration, You've had now the Biden administration.
Speaker 1: Out of the Biden administration, how has the US changed
Speaker 1: the games? How has the US's emerging attitude to the
Speaker 1: region affecting the way countries think about it?
Speaker 8: Well, it depends what country you're in. Certainly the US
Speaker 8: has changed its geopolitical policies towards China, defense policies, and
Speaker 8: I think that started rather abruptly under Trump, but it's
Speaker 8: you know, to give him credit, but it's been refined
Speaker 8: and kept by President Biden. I think President Biden also
Speaker 8: has also changed US economic policies. Not it's probably a
Speaker 8: bit unfair to call it along Trumpian lines, but you know,
Speaker 8: they maintained the tariffs against China. They're accelerating a form
Speaker 8: of industry policy in the United States through the Inflation
Speaker 8: Reduction Act, through various incentives to build semiconductor plants in
Speaker 8: the United States, and of course the speech recent speech
Speaker 8: by Jake Sullivan where he laid it out as part
Speaker 8: of a core part reindustrializing the United States, as a
Speaker 8: core part of US geopolitical strategy. Now, this affects all
Speaker 8: sorts of countries in different ways. You know, for example,
Speaker 8: South Korea and Japan, which you want close relations with
Speaker 8: the US and in fact depend on them, have had
Speaker 8: to adjust their own domestic economic policies and tech policies
Speaker 8: to fit in with that. A country like Australia, which
Speaker 8: sees itself as a sort of renewable energy superpower, is
Speaker 8: now going to struggle to attract the investment it needs
Speaker 8: to do that because the Inflation Reduction Act is the
Speaker 8: giant sucking sound which is taking you know, attracting global
Speaker 8: capital to the United States instead of to other countries.
Speaker 8: The US thinks that it fell behind in strategic competition
Speaker 8: with China and is now rushing to catch up again.
Speaker 8: And so it's not going to take you know, it's
Speaker 8: looking for leverage just about it at every point, and
Speaker 8: that in some respects is extremely welcome in parts of
Speaker 8: the region. But of course if the US pursues policies
Speaker 8: like that, then it's going to rebound on them as well.
Speaker 8: And I think particularly in the economic sense in Asia,
Speaker 8: where you know, China is really i think starting to
Speaker 8: streak well ahead at the moment, and where the US,
Speaker 8: because of its suspicion of trade in the administration and
Speaker 8: in Congress, is really struggling to catch up.
Speaker 1: I just have one one last question. There is one
Speaker 1: event which is a long way away from from Hiroshima,
Speaker 1: but seems to have changed attitude quite significantly at summits
Speaker 1: like this weekend's G seven summit, and that's of course,
Speaker 1: Russia's invasion of Ukraine. That is an ongoing story. In fact,
Speaker 1: the long awaited counter offensive by Ukraine. We're certainly anticipating
Speaker 1: it potentially in a matter of days. So Rory, how
Speaker 1: much has Russia's invasion of Ukraine and China's response to
Speaker 1: it affected conversations like the ones the leaders are going
Speaker 1: to have at Hiroshima.
Speaker 7: Look seriously, I think, very seriously. I think that the
Speaker 7: impact of Putin's disastrous and brutal decision to invade Ukraine
Speaker 7: here in the Indo Pacific is pretty profound. It has
Speaker 7: reinforced the national security and defensive aspect of Japan's state craft.
Speaker 7: It's done the same here Australia. It's made it difficult, however,
Speaker 7: for a number of other partners in the region to
Speaker 7: work together. I think the fear of conflict in this
Speaker 7: region has risen, I think has been heightened by Russia's
Speaker 7: invasion of Ukraine. Now, paradoxically, you could make a case
Speaker 7: that the day when shutin Pin will decide to invade
Speaker 7: Taiwan to send the pla across the Taiwan straight, perhaps
Speaker 7: that day has been delayed because Chinese forces have seen
Speaker 7: how no battle plan survives first contact, and how the
Speaker 7: Russian military is so poorly and grotesquely performed in Ukraine.
Speaker 7: But we can't be sure, and so I think there's
Speaker 7: now an open debate in this region about whether conflict
Speaker 7: is more or less likely as a consequence of Ukraine,
Speaker 7: Whether in fact Taiwan needs to be looking much more
Speaker 7: robustly to its own defenses, and ultimately how important military
Speaker 7: deterrence is. Now at the start of this conversation, we
Speaker 7: talked a little bit about de risking and about the
Speaker 7: economic and commercial calculations being made constantly as we study geopolitics.
Speaker 7: And I would say that one consequence of the Ukraine conflict,
Speaker 7: the Russian invasion here in the Indo Pacific is that
Speaker 7: I encountered many more voices in business communities who are
Speaker 7: worried about the reality of war as a factive life
Speaker 7: in the twenty first century. Who know now that they
Speaker 7: need to have at the very least contingency plans for
Speaker 7: a Taiwan conflict, for their investments, for their personnel, for
Speaker 7: their staff. Those are conversations that weren't happening three or
Speaker 7: four years ago, even two or three years ago. And ultimately,
Speaker 7: wherever the G seven lands on this issue, I mean,
Speaker 7: I'm sure the Japanese would like to use the G
Speaker 7: seven as a platque to be putting pressure both on
Speaker 7: China and Russia. No matter where the summer tree goes
Speaker 7: this week, these realities are going to remain in this region.
Speaker 7: It's not the in that sense, you know, It's not
Speaker 7: the globalized or corn ucopean world we were looking at
Speaker 7: when we were talking Rosalie about the Asian century just
Speaker 7: a decade or two ago.
Speaker 1: This is so fascinating. We could carry on for many,
Speaker 1: many more hours, but I know that we all have
Speaker 1: to get on with our lives, and we have already
Speaker 1: taken more time than I had suggested. So Richard McGregor,
Speaker 1: Rory Metcalf, thank you so much.
Speaker 6: Thank you so much, thank you.
Speaker 1: Well, that's it for this episode of Stephanomics. We'll be
Speaker 1: back next week. In the meantime, you can get a
Speaker 1: lot more economic insight and news from the Bloomberg Terminal
Speaker 1: website or app. This episode was produced by mangnus Henrickson,
Speaker 1: Yang Yang and Summer Sadi, and the sound engineer for
Speaker 1: the Hiroshima segment was Zion Lee, with special thanks to Yoshiahara,
Speaker 1: Paul Jackson, Yoshito Okubo, kiko Uji, Khani Takashi, Nakamichi Torofujioka,
Speaker 1: Stacy Wrong, Richard McGregor, and Rory Metcalfe. The executive producer
Speaker 1: of Stephanomics is Molly Smith and the head of Bloomberg
Speaker 1: Podcast is Sage Bowman.