The Small Yard Problem: How America and Japan De-Risk from China
Author: Timothy Cichanowicz (PhD Candidate, University of Kansas)
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Introduction
China’s rise and fears of weaponized interdependence are causing democracies to rethink the relationship between their trade policies and national security. Are semiconductors and rare earths important to national security? How about garlic imported from China? Legislative efforts in the United States have proposed each item is worthy of de-risking and highlight the growing scope of the economic security debate. The 117th Congress saw the CHIPS and Science Act and other landmark industrial policies. Later in 2023, Senator Rick Scott sent a letter to the Commerce Department warning that Chinese garlic, grown, as he put it, "in sewage," had no place in American grocery stores. Surely enough he would propose a bill that would limit the imports of Chinese garlic into the US. On the other side of the Pacific, Japan has ushered in the world’s first comprehensive economic security law which designates critical materials that Japan must de-risk. In this context, Japan has also leveraged industrial policy towards semiconductors, but also for airplane parts and fertilizers. With such a wide variety of products being securitized in this geopolitical environment we arrive at the research question: How are advanced democracies around the world dealing with the trade-offs between economic security and economic freedom?
To examine how the de-risking debate varies across democratic contexts, advanced democracies such as the United States and Japan will clarify what the future debates over economic security and economic freedom might look like. My co-authored work with Jack Zhang, published in Law & Geoeconomics, takes a close look at exactly this question by comparing how the United States and Japan have approached the task of "de-risking" their economies from China. De-risking proponents call for constructing small yards and high fences around key products and vulnerabilities. However, de-risking is inherently difficult: about 40% of all trade is globally concentrated, in which three or fewer economies provide at least 90% of global exports. A top-down national security argument is that some items, such as rare earths and other key inputs, might lead to dependencies that can be weaponized due to their overreliance on chokepoints. That said, the bottom-up politics of trade suggests that domestic special interests will be keen on influencing these debates to ensure that they emerge as winners of these economic security policies with redistributive outcomes. After all, in the United States and Japan domestic interests are key for understanding how Congress votes on free trade and how the Japanese Diet liberalizes its markets. Japan and the US have penned numerous bills that are aimed at revisiting their economic relations with China. The two countries have emerged as key barometers to examine what the future of de-risking might look like.
Japan Got Here First and Did It Differently
Japan’s economic security debate began well before similar discussions in Washington arose. In 2010, following a territorial dispute, China was accused of restricting rare earth exports to Japan -materials essential for electronics, electric motors, and defense technology. Japan's dependence on China for roughly 90% of its rare earth supply quickly manifested into a strategic vulnerability. Japan's response was measured, technocratic, and effective. Through targeted subsidies and active diversification, Japan worked to reduce its rare earth dependence on China from around 90% to roughly 58% by 2018.
This instinct for precision culminated in Japan's Economic Security Promotion Act (ESPA), passed in 2022. The law is notable for what it includes and what it deliberately leaves out. It identifies eleven specific strategic materials such as semiconductors, fertilizers, antimicrobials, ship parts, and other various products. The law also implements a framework for adding in future products as was the case in the expansion of this list to include advanced electronics in 2024. In contrast to policy debates mentioning geopolitically distant countries such as China and Russia, the act never mentions China by name. The framing is forward-looking and systemic: Japan is securing what its people need whilst avoiding openly antagonizing their neighbor it still does billions of dollars of business with every year. That said, given that the previous rare earths de-risking program took 8 years to bear fruit it will take time before the effectiveness of this new policy can be evaluated.
The American Approach: Everything, Everywhere, All At Once
The United States joined the de-risking debate later and louder. The 2018 trade war and the COVID-19 supply chain catastrophe all combined to produce a bipartisan legislative wave of economic security policy proposals in Congress. Between 2018 and 2024 our paper identifies 166 bills in Congress that target traded goods with China. This number exploded tenfold between 2022 and 2023 as the number of such bills introduced in Congress went from 10 to 105 bills and resolutions. This number underscores legislative interest that followed landmark bills such as the CHIPS and Science Act, the Uyghur Forced Labor Prevention Act, and the Inflation Reduction Act.
With the World Trade Organisation in disarray, Congress has predictably argued for trade restrictions towards China on all sorts of rationale. The range of products caught up in this wave is wide-ranging: it includes everything from semiconductors and cloud computing infrastructure to consumer drones, mail, and even milk and garlic imported from China. The Uyghur Forced Labor Prevention Act, one of the most significant pieces of legislation in this space, restricts a large variety of imports from China's Xinjiang region on human rights grounds. Though the legislation has framing not directly tied to national security, Beijing would interpret this act no differently than these other acts due to the economic externalities being all the same.
As evidenced by the various areas of commerce now subject to trade restrictions, the US approach is broader in almost every measurable sense when compared to Japan’s narrow definitions of economic security. The CHIPS and Science Act alone committed more than $52 billion to semiconductor reshoring, which is several times the entire initial budget Japan allocated across all eleven of its ESPA-designated products. The United States also deploys a far wider toolkit: tariffs, export controls, investment screening, entity lists, sanctions, visa cancellations. This wide variety of products whose trade is now restricted highlights that separating protectionism from national security in the US case is increasingly difficult in the bilateral context of US-China trade relations in which all aspects are becoming securitized.
US and Japanese Convergence
Although there are pointed differences in US and Japanese economic engagement with China, there is meaningful convergence along key products. Both countries have made semiconductors a top priority. Japan is now home to a TSMC fabrication plant in Kumamoto, as the US is building new Intel capacity in Ohio with various other projects popping up through both nations as a result of these industrial policies. Both have securitized the aviation industry, information technology infrastructure, and nuclear energy. Both are worried, in different ways, about the same fundamental problem: decades of economic integration with China have created chokepoints that China could, in a crisis, exploit.
This overlap is a key finding of our research. When two allied democracies with different political systems, different industrial structures, and different relationships with China independently arrive at the same list of concerns, that convergence carries real weight. It suggests that the "small yard" - the genuine security-relevant core of de-risking - is real. What remains to be determined is how many more small yards there will be and how high of fences that Japan and the US will be willing to build.
The Future of the De-Risking Movement
The debate isn’t just academic: for every product that becomes securitized, the economic price tag will land on the taxpayer. Consumers pay more either at the checkout or through higher taxes leveraged for industrial policies like the CHIPS and Science Act. Unilateral policies rarely only affect the targeted country: multinational corporations get caught in the crossfire as Japanese companies, like Uniqlo, face real disruption from US restrictions on Xinjiang cotton that had nothing to do with Japanese policy. Economic security policies and any move that restricts bilateral trade will have global ripple effects.
Japan, for its part, still largely believes in the rules-based trading system as it remains committed to multilateral frameworks. By contrast, between both presidential candidates walking away from the Trans Pacific Partnership in 2016, to President Biden’s continuation of the US-China trade war, Washington’s embrace of the international free trade regime has weakened. Despite these differences there will also be opportunities: as debates over global economic freedom reignite, will de-risking bring friendshoring and economic security cooperation? Perhaps if many small yards and high fences are constructed, small gates will be installed as well to ensure economic exchange with like-minded countries.
As more products are swept into the security tent and as the small yards grow more numerous and the fences taller, the question becomes unavoidable: if everything can be a national security issue, how can states demarcate where business can remain business and what products necessitate yards and high fences? While our article focused on the approaches taken by Washington and Tokyo, these dilemmas are not unique to them. Other major actors, such as the European Union, are grappling with these debates. Future research could build upon this analysis by examining how other actors approach these same debates. Finally, these debates are far more than academic. The economic costs of getting it wrong are not abstract: they show up in prices, in jobs, and in the durability of the alliances these policies are supposed to protect.
