Japan tries to reclaim its clout as a global tech leader

China’s envy-inducing success in using industrial policy to expand its economy and finance green manufacturing has helped kick off a fevered scrimmage among nations to develop and protect their own hometown businesses.

It has been 40 years since such competitive anxieties about a rising Asian power prompted this kind of embrace of government intervention among the biggest free-market economies.

Only then it was Japan, not China, that was the source of unease.

Michael Crichton’s 1992 thriller, “Rising Sun,” with its dark depiction of Japan’s ruthless economic warriors, ruled the bestseller lists, alongside nonfiction titles that warned of the financial and technology juggernaut created by Japan’s powerful government trade ministry.

In a 1990 survey, nearly two-thirds of Americans said Japanese investment in the United States posed a threat to American economic independence.

It turned out that the anxiety about Japan Inc. peaked just as the country began a long economic slide after the collapse of real estate and stock market bubbles.

Now, after a period of stagnation that Japan’s economy ministry refers to as “the lost three decades,” Tokyo is engaged in a multibillion-dollar industrial policy to jump-start the lackluster economy and recapture its position as a tech innovator.

This time, Japan is working with technology leaders in the United States and other countries — a collaborative approach that decades earlier would have been unthinkable.

But even as Tokyo is pursuing less inward-looking policies, the political storm over a Japanese-led acquisition of U.S. Steel illustrates how the United States is increasingly moving to protect other key industries from foreign influence.

Tokyo’s industrial policy focus today is on advanced forms of technologies ranging from batteries to solar panels, but the priority is reclaiming a bigger share of the global semiconductor industry, for which the Japanese government earmarked more than $27 billion over the past three years.

“In the future, the world will be divided into two groups: those that can supply semiconductors and those that only receive them,” said Akira Amari, a senior official in Japan’s ruling party who previously led the Ministry of Economy, Trade and Industry. “Those are the winners and the losers.”

Based on lessons learned over the past few decades, Japan is trying out a new playbook when it comes to chips, Amari said: “Now, we are collaborating with international partners from the very start.”

Although other nations are spending hundreds of billions of dollars to gain an edge, Japan’s efforts stand out because of its history of using industrial policy to develop quickly after World War II.

“It doesn’t have to start from scratch,” said Alessio Terzi, an economist at the European Commission. “This is already something that sets it apart from other countries.”

The centerpiece of Japan’s new industrial push is taking shape at a year-old construction site on Hokkaido, its northernmost island. The area is better known for champagne powder skiing in winter, lush carpets of flowers in summer and volcanic hot springs.

Across open pastures and not far from the Chitose airport is the rough outline of Rapidus Corp.’s new semiconductor plant, still surrounded by a sprawling exoskeleton of silver scaffolding.

The factory, financed in part by billions of dollars of government money, is being developed by an unusual collaboration between Rapidus, a startup Japanese chipmaker, and American tech company IBM. It will produce the so-called 2-nanometer chips, a technology that IBM pioneered at its lab in Albany, New York.

The idea for the partnership was conceived in the summer of 2020 with a phone call to Tetsuro Higashi, chair of Rapidus, from a friend, John E. Kelly III, a longtime executive at IBM.

“I thought he was maybe just calling to catch up,” said Higashi, 75.

He wasn’t. Kelly explained that IBM was developing a new generation of chips and wanted to produce them in Japan.

Higashi soon determined that no company in Japan was capable of mass-producing this kind of advanced logic chip. In his eyes, he said, it was a now-or-never moment.

“I knew if I refused IBM’s call at this point, there would be nothing going forward,” Higashi said. Japan, once the world’s premier semiconductor manufacturer, had seen its market share fall from more than half in the 1980s to less than 10%. Without action, Higashi said, “Japan would just fall further and further behind in our technologies.”

Higashi’s next move was to reach out to Amari, the government’s point person on industrial policy.

It was a good time to ask the Japanese government for help building a factory.

Pandemic-related shortages of everything from computer chips to sriracha and then skyrocketing energy costs stemming from Russia’s invasion of Ukraine had refocused attention in Tokyo and capitals around the world on the importance of resilient and secure supply chains.

In 2020, Japan added new subsidies to encourage Japanese businesses producing essential products like semiconductors, wind turbines, vaccination syringes and rubber gloves to relocate operations back home or in nearby countries.

Meanwhile, rising tensions between the United States and China further undermined faith in a cooperative international order built on shared rules and open trade.

In 2021, the trade ministry introduced a more aggressive industrial policy. A primary reason for Japan’s years of stagnation, the new planning committee concluded, was the government’s excessive anti-regulatory, hands-off approach to the economy.

The ministry also looked at what major competitors like the United States, the European Union and China were doing, and then analyzed Japan’s previous industrial and economic policies.

The “new direction” would not repeat the previous strategy of fostering and protecting certain sectors, the committee said. Instead, it would use the government’s entire regulatory tool kit to pursue “mission-oriented projects” like promoting green technology and energy conservation.

The government’s commitment would be “large-scale, long-term, well-planned,” the committee said.

The ideas laid out mirror much of the latest thinking by economists like Mariana Mazzucato and Dani Rodrik, who have endorsed industrial policies to deal with issues like the green transition and digitalization.

Japan tried a wholly domestic approach to reviving its faltering chip industry 25 years ago. It merged several top Japanese chipmaking businesses into one entity, Elpida Memory, and later showered it with public investment and loans.

In 2012, Elpida filed for bankruptcy, the largest bankruptcy of a Japanese manufacturer since World War II.

Today’s semiconductor industry “is truly global,” Amari said: Taiwanese firms produce chips designed in America, using equipment from the Netherlands and Japan.

Rapidus will receive technology from IBM for its high-performance semiconductors and has dispatched hundreds of engineers to the IBM research facility in Albany to help develop technologies for mass-producing the chips.

The government is backing both big gambles like Rapidus and smaller ones.

Japan wooed Taiwan Semiconductor Manufacturing Co., the chipmaking behemoth, to build a plant in the southern town of Kikuyo with investment from domestic players including Sony. The factory, financed in part by the government, opened in February.

“Without government intervention, the numerous projects currently underway in Japan would likely not have materialized,” a conference at the Brookings Institution’s Center for Asia Policy Studies noted in its wrap-up this spring.

There are skeptics in Japan. The Rapidus plant has drawn criticism over its ambitious timeline and its inability to attract more private-sector investment.

But Amari argues there is no alternative.

“Not taking on semiconductors now means you will be in the loser group from the start,” he said. “Japan will never choose that.”

This article originally appeared in The New York Times.

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