By Jeff Kucharski, November 9, 2023
Canada’s deteriorating relations with India and already poor relations with China have some questioning whether Canada’s Indo-Pacific strategy can remain effective. Little consideration has been given to the role and importance of Japan, Canada’s most important partner in the Indo-Pacific outside of the United States. Current geopolitical realities mean that Japan will be much more central to effectively delivering on Canada’s Indo-Pacific strategy now and for the foreseeable future.
In an increasingly geopolitically unstable and unpredictable world, national security issues now loom large for Canada. As Canada has learned in the case of India and China, we cannot go it alone and need the support of our closest allies and partners in the international arena. As Canada seeks to diversify its trade relationships and pursue opportunities to integrate more deeply in the Indo-Pacific region, there is a compelling case for Canada to build on its strong foundation of cooperation with Japan to forge a closer, more comprehensive relationship.
Enhancing economic security
National security has many dimensions, but economic security is the foundational one and is concerned with sustaining economic vitality and resiliency. It is only through a strong economy and enduring economic prosperity that countries have the capacity to play a positive and influential role on the world stage.
Japan recognized this fact by creating a dedicated Minister for Economic Security and enacting a sweeping economic security law in May of 2022. The law requires that Japanese companies consider economic security issues as part of their decision-making processes. This includes making supply chains resilient to disruptions from geopolitical conflict and relying more on allies and partners for supplies of strategic goods. Canada has been much slower to respond to threats to its economic security but has still taken meaningful steps in this direction. These include tightening national security reviews under the Investment Canada Act, investing in critical infrastructure and working with the U.S., Japan and other allies on building critical minerals and clean energy supply chains.
Canada and Japan, respectively, have complementary strengths that could make for a powerful economic partnership. Canada boasts abundant natural resources, including energy, minerals, and agricultural products, while Japan is a leader in advanced technology and manufacturing expertise, and home to one of the world’s largest domestic consumer markets.
Canada currently enjoys a well-balanced and productive trading relationship with Japan – its second largest export market in the Indo-Pacific after China. In 2022, Canada’s exports to Japan increased by an impressive 24 percent on a value basis, with Canadian energy products driving this growth. Meanwhile, exports to China were virtually flat, growing by a paltry 2 percent. Canada’s trade with Japan is also quite balanced, with about $18 billion in exports to Japan and about $17 billion in imports from Japan. While China remains Canada’s largest export market in the Indo-Pacific with about $28 billion in exports, the balance of trade weighs heavily in China’s favour with Canada importing 3.5 times more from China that what China imports from Canada.
Closer relations with Japan can help diversify trade within the Indo-Pacific, attract investment and protect Canada from the threat of economic coercion. Both countries are signatories to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and Canada has applied to join the Indo-Pacific Economic Framework (IPEF), of which Japan and the U.S. are members. Both Canada and Japan hold Strategic Dialogue meetings with the U.S. to coordinate approaches to the Indo-Pacific.
One of Japan’s most pressing economic security concerns is energy supply. Most of Japan’s energy supplies must travel through the South China Sea, putting these supplies at risk should there be a conflict over Taiwan or a disruption of sea lanes. Japan views Canada has a safe, reliable supplier and is investing heavily in Canada’s energy supply chain. Canada’s reserves of oil, natural gas, renewables and critical minerals can help Japan achieve its energy transition goals and reduce its dependence on suppliers in authoritarian regimes and less stable regions.
Energy products, mainly coal and liquid petroleum gas (LPG), are currently Canada’s largest export category by value, accounting for more than 30 percent of Canada’s total exports to Japan. Canada’s energy exports are set to increase dramatically in the next few years once the Transmountain (TMX) pipeline expansion project comes online in 2024 and the LNG Canada project begins exporting around 2025. LNG Canada is well-positioned to provide low-emission liquefied natural gas (LNG) to Asian markets including Japan, and TMX will provide more options for Asian buyers to reduce their reliance on the Middle East and Russia for crude oil and help improve overall energy security in the region.
On the horizon, ammonia and hydrogen are exciting new energy export opportunities for Canada. Japan plans to import millions of tons of ammonia in the next few years as part of an effort to decarbonize its electricity generation system. To this end, Japanese companies have already made proposals to invest in Canadian ammonia production for use in Japanese power plants and, eventually, to help extract hydrogen for use in zero-emissions vehicle fleets.
The level and pace of cooperation in the energy and critical minerals sector holds great promise for the future. During the visit of Japan’s trade minister, Nishimura Yasutoshi, to Ottawa in September, Canada and Japan signed a memorandum of cooperation that will see Japanese public and private entities develop supply chains in Canada for electric vehicles that encompass extracting and processing critical minerals as well as battery production. Another memorandum also signed in September will see Canada and Japan expand cooperation in the fields of science and technology.
Enhancing geopolitical stability and regional security
In an era marked by geopolitical tensions and uncertainty, a partnership between Canada and Japan can contribute to regional stability and serve as a model for peaceful cooperation, reinforcing the importance of diplomacy and international norms. Both Canada and Japan share a commitment to upholding the rule of law, human rights, and democratic values. By aligning their diplomatic efforts on issues such as human security, transnational crime prevention, human trafficking, cybersecurity, and counterterrorism the two nations can amplify their joint impact in the region.
Japan has been steadily taking leadership in the Indo-Pacific, through its commitment to collective defense and increased spending on security and the military. The Japanese government has announced a plan for Japan’s national security-related spending to reach 2 percent of GDP by 2027. This figure includes a pledge to increase defense spending by two-thirds over the next five years. This is significant in view of the rapidly deteriorating regional and global security environment and China’s aggressive moves to gain de facto control over the South China Sea. It also demonstrates Japan’s strong commitment to oppose any unilateral attempts to change the status quo in the region by force or coercion.
When Prime Minister Fumio Kishida visited Canada in March of 2023, he reiterated Japan’s commitment to the “free and open Indo-Pacific” (FOIP) concept that aims to defend freedom and the rule of law, enhance connectivity, and promote prosperity within the Indo-Pacific region. Canada should continue to support these principles and work with Japan and other allies to reinforce this approach. While Canada has committed three navy frigates to regular activities in the Indo-Pacific and has participated in freedom of navigation operations in the Taiwan Strait and elsewhere, potential cuts to Canada’s military budget threaten the capacity to respond to threats, in addition to risking Canada’s reputation as a serious contributor to peace and security in the region.
Japan has a lot of experience in managing geopolitical issues in the Indo-Pacific and could be helpful in acting as a strategic advisor to Canada in managing its fraught diplomatic relationship with China. Japan has managed to successfully sustain its prosperous economic relations with China – its largest trading partner – while, at the same time, strengthening its military and security capacities to stand up to the regional superpower when necessary. Japan has managed to co-exist with China for thousands of years and there is probably no country on earth that understands China as deeply as Japan does. As such, Canada should take advantage of any advice and assistance it can get from Japan in managing its own relations with China.
Toward a strategic partnership
The affinity between the people of Japan and Canada, our complementary economies, shared security interests and commitment to democracy, human rights, and a rules-based international order, make Canada and Japan natural partners. These facts make a strong argument for the two countries to forge a more robust, comprehensive, and formalized relationship through a strategic partnership agreement. Canada already has such an agreement in place with the European Union; both Canada and Japan have bilateral strategic dialogue talks with the U.S., but not with each other.
Canada should move to cement a strategic partnership with Japan as soon as possible. Such a partnership would build on the solid foundation of relations that have already been established, strengthen national and regional security, and help Canada achieve many of the aims of its Indo-Pacific strategy.
Jeff Kucharski is a Senior Fellow with the Macdonald-Laurier Institute. His current research is focused on energy security, international trade, the geopolitics of energy and the Indo-Pacific.
