In the years following 1990, Japan's once-thriving economy began to stagnate, a stark contrast to the nation's rapid rise to global economic prominence just a few decades earlierIn the 1980s, Japan was on the brink of surpassing the United States in GDP, positioning itself as a global economic powerhouseHowever, a series of missteps, including the bursting of its real estate bubble, led to a long period of economic malaiseWhile Japan's internal factors played a significant role in this downturn, the rise of China in the 1990s acted as a powerful accelerant, further exacerbating Japan's economic struggles.
Throughout history, the ascent of one nation often comes at the expense of othersIn the case of China's rise, the country has not only absorbed labor-intensive industries from the West but also strategically shifted towards high-tech and value-added manufacturing through initiatives like "Made in China 2025" and "Made in China 2035." These efforts have encroached on territories previously dominated by Japan and South Korea
Where Japan once had a diversified industrial base, today its economic strength has become increasingly concentrated in the automotive sector.
In recent years, the top three industrial companies in Japan by revenue have all been automakersMajor Japanese industrial firms with revenues exceeding $90 billion are also predominantly automotive companiesAs of the latest figures, the combined revenue of Japan's "Big Eight" automakers stands at $588.7 billion, accounting for about 39.3% of Japan's total industrial outputIf we factor in upstream industries like steel, automotive glass, electronics, and bearings, the automotive sector’s dominance becomes even more apparent, with the industry comprising nearly half of Japan's top 90 industrial firms by revenue.
So, the question arises: where have the other industrial sectors in Japan gone? The answer is simple—China absorbed them
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Japan's once-dominant industries, such as home appliances and shipbuilding, have largely been overshadowed by China's rapid development in these sectorsBut it’s essential to understand that this shift is not a recent phenomenonThe data we're examining here is from eight years agoToday, Japan's traditional industries are in decline, with even its semiconductor sector—the one area where Japan had managed to maintain an edge over China—beginning to lose ground.
It’s easy to view Japan’s current struggles as a direct result of its rivalry with China, but the root causes of Japan’s decline lie much deeperThe crux of the issue is Japan’s inability to adapt its economic and monetary policies to the shifting global landscapeOver the years, Japan has found itself tethered to the U.S.-dominated global economic system, unable to break free from its role as a subordinate partner in this arrangement
The "dollar tide" in recent years, coupled with Japan's colonial-style economic dependency, has left the country unable to chart its own course.
China's rise, inevitably, has come at the expense of Japan's industrial strengthHowever, this shift could ultimately benefit Japan in ways that are not immediately obviousOne of Japan's key pain points has always been its lack of natural resources and domestic marketsUnder U.Sdominance, the prospects for remedying this situation were limitedYet, as China continues its industrialization and secures its place as a global manufacturing hub, Japan may find new opportunities to leverage its geographic proximity to ChinaBy embracing this relationship, Japan could benefit from industry shifts that see Chinese manufacturing migrating to neighboring countries, opening up avenues for Japan to engage in new trade relationships with China.
Japan's strategic positioning could allow it to tap into Chinese industry shifts while also integrating itself into China's vast consumer market
This connection could stabilize Japan’s long-term economic prospects, providing a secure, mutually beneficial partnership that ensures both countries’ growthBy fostering closer economic ties, Japan can bolster its position in the global order, transforming from a former colonial power into a more normal, independent nation that plays an active role in regional and global affairsThis could offer Japan the chance to shed its colonial legacy, atone for the historical sins of militarism, and return to its rightful place in the broader Asian geopolitical order.
For China, Japan’s industrial decline has presented an opportunity to expand its own influence and bolster its position as a dominant force in global manufacturingThe shift in Japan’s industrial landscape has been a long-term process, but the accelerated growth of China’s industrial sectors—coupled with Japan’s economic stagnation—has resulted in a massive transfer of global manufacturing capacity to China
While Japan’s losses have been significant, China has emerged as the primary beneficiary of this shift.
From a geopolitical perspective, Japan’s decline also signals the erosion of its military potentialAs Japan's industrial capabilities diminish, so too does its ability to project military powerThis, in turn, has led to a reduction in Japan’s threat to global peace and stabilityWith its diminished capacity to wage war, Japan may be able to reposition itself as a peaceful, responsible global actor, free from the shackles of its imperial pastThis could be seen as a positive development for both Japan and the world at large, as it allows for the country to fully embrace its post-war identity and reestablish its place in the global community.
However, Japan’s decline is not without its challengesWhile the long-term outlook might seem optimistic, Japan’s internal political culture still exhibits tendencies toward escapism and nostalgia
The country’s penchant for "gambling" with national fortunes—be it through its involvement in the Korean War, its pursuit of the Olympics, or its current stance in the escalating tensions between China and the United States—suggests that Japan has not entirely freed itself from the impulse to engage in risky gambitsThe process of decline, after all, is never smooth, and it remains to be seen how Japan will navigate the tensions and conflicts that arise as its influence wanesThe "gambling" mentality may yet lead to a resurgence of nationalism or even some form of military rearmament, although this would be a dangerous path to follow.
For China, the rise to power that we are witnessing today may seem like a singular historical event, but it is part of a much broader narrative that spans millenniaJapan’s industrial rise and fall is but a brief chapter in the grand sweep of history