Such a good treatise from Andrew McDermott. Covers everything, and I couldn't agree more. Although, it is hard to know whether choosing Japan's exact path would have ever been possible for the US at times, it is clearly true that the US needs to model many aspects of Japan's strategy. The narrative is part of the problem. The US never succeeds to see the world from Japan's perspective, or to understand that many of its refined choices are actually applicable to US domestically. I spent my life trying to explain Japan's choices to Americans, attempting to unveil the positive. After nearly 40 years of this, can't say I've ever really fully succeeded. But what I can say, is that when it is so clearly explained as Andrew has done in this piece, it does manage to convince a few. So, great effort. Well done.
Thank you for sharing this. My father worked as a Naval Architect and Shipbuilder in Japan for 6 years, arriving in Hiroshima in 1953 from George Campbell & Co, Naval Architects of Montreal. His firm had been awarded a contract to design a line of cargo ships under the Marshall Plan and many of the ships were built by Mitsubishi at their Hiroshima Dry Dock facility. He loved Japan and would have stayed despite being a gaijin, but he was offered a job as Chief Naval Architect at Blohm+Voss in Hamburg where he met my mother, who was teaching in Lübeck at the time. My father retained a life long admiration and love for Japan and their people for the rest of his life and I grew up in a house surrounded by Japanese (and Indian, but that is another story) art and culture.
Andrew, this is a brilliant observation of Japan's execution, but I would challenge the label 'Pax Nipponica.' In the ChinArb framework, Japan can not be a new independent pax (a second System B / China); it is securing its role as the Chief Operations Officer (COO) of System A.
1. The Transplant Test: Arizona vs. Kumamoto You mention TSMC. This is the ultimate litmus test for the West's re-industrialization. System A (US) tried to transplant the chip supply chain to three soils:
US (Arizona): Massive friction, culture clash, delays. (Organ Rejection).
Europe (Germany): Bureaucratic paralysis.
Japan (Kumamoto): On time, under budget, seamless. The Verdict: The US wants to build the 'Small Yard, High Fence,' but only Japan can. Japan isn't winning independence; it is proving it is the only viable industrial soil left within System A.
2. 'Greater Japan' = The General Contractor What you call 'Greater Japan' (Japan-Taiwan-Philippines-Australia) is precisely the 'Non-China Supply Chain Block' that Washington designed but couldn't build alone. The US is the Architect (Capital & Strategy); Japan is the General Contractor (Execution & Logistics). Japan is building the fence that the US ordered.
3. Why Japan Can't Be a 'Second China' (The Physics of Scale) A counter-argument might be: 'Why can't Japan stand alone as a third pole?' The answer lies in Scale and Strategic Depth.
The Missing Stack: System B (China) owns the full stack: Mining -> Smelting -> Manufacturing -> Market. Japan only owns the 'High-End Manufacturing' slice. It relies on System B for minerals (upstream) and System A for consumption (downstream).
The Kinetic Reality: Facing the industrial mass and missile range of System B, Japan lacks strategic depth. Without the US Nuclear Umbrella, Japan cannot physically survive System B.
Conclusion: Japan is not becoming a 'Second China.' Japan is becoming the 'Industrial Exoskeleton' for a hollowed-out America. It is a symbiotic relationship: Japan provides the Monozukuri (How to Make), and the US provides the Market and the Shield (Who to Sell to & Who Protects).
Hard to disagree that China now clearly views Japan as a security threat!
Regarding PE(private equity) regulation, though, I suspect Japan is unlikely to move in that direction. We are already seeing positive PE cases in Japan—Bain’s turnaround of Skylark being a good example—and although the Seven-Eleven situation ultimately did not materialize, it suggests that Japan’s financial markets are gradually moving toward engaging more seriously and constructively with activist investors.
An anecdote that reflects the change of US corporate management. In 2000, I was in a meeting with the CFO and Treasurer of a major US manufacturing company with the purpose of discussing financial markets (my expertise is FX) along with rates and their balance sheet. But the CFO started by giving a complete rundown of the firm's business segments, details about operations and changes they were implementing to improve efficiency and grow revenues and profitability. Prior to the role, he had been an operating manager within a major division. My last meeting with a CFO and Treasurer, in 2022 resulted in a demonstration of virtually no understanding of the business at hand, but a keen handle on each basis point they paid in interest.
This is an excellent article and description of how things are, I believe, and a potential path forward for the US, if we are smart enough to head down that path
The Japanese militarist /empire building faction led Japan to disaster in the 1940's. It is sad to think they might be going to do the same thing again less than 100 years later.
Calling Taiwan part of Japan is as stupid as calling the US state of Louisiana part of France. Sure, Louisiana was a French colony just as Taiwan was a Japanese colony but neither France nor Japan has the military capacity to re conquer their former colonies. One of the outcomes of World War 2 was Japan was forced to give Taiwan back to China. Any attempt by Japan to change the outcome of WW2 and argue that Taiwan is not part of China is naturally seen as incredibly provocative in China.
Japan can and does hold military exercises with and without the US practicing a sea blockade of China. But what on earth is the point of that? Japan probably could stop most civilian ships from going to China, but then China could do the same to Japan. Which country would be more damaged by a blockade? The answer is clearly Japan. China can get everything it needs to run its economy through land routes (rail and road) if it has to. Japan obviously cannot. If Japan attacks China, either over Taiwan or for some other reason and China responds by blockading Japan it would be the end of Japan as a modern economy.
In the last century Japan has tried two methods to get the resources it needs. The first was using the military to steal things, from Korea, China then across Southeast Asia. That failed. After WW2 they stopped wasting money on the military and simply bought the stuff they needed. This worked far better. In the last couple of decades, the militarist faction has been growing in power again (with the enthusiastic support of the US) and spending on the military has been increasing.
Hopefully the Japanese will think about the past failure of the militarist faction and instead choose peaceful cooperation with China.
"On 10 October 2025, the Ministry of Justice of Japan promulgated an amended ministerial ordinance that tightens the requirements and criteria for the “Business Manager” visa in Japan. Under the new rules, the minimum capital requirement will be raised to 30 million yen (six times the previous amount). Additional requirements include Japanese language proficiency, management experience, and the employment of full-time staff." - https://kpmg.com/xx/en/our-insights/gms-flash-alert/flash-alert-2025-195.html
Thank you for an excellent article. Just a small correction... KIOXIA does not manufacture DRAM, and is in fact suffering from high DRAM prices because it needs to purchase it externally for controller circuits of FLASH memory that it manufactures. It is seeing great commercial success with its latest generation (BiCS 8) of FLASH products because for the first time in many generations it has achieved technological/cost superiority over Samsung, and is reaping the rewards.
I think it boils down to Japan, in some sense, implementing stakeholder optimisation in a way that has positively benefited Japanese society; the ground rules and frameworks were set by the father of Japanese capitalism, Eiichi Shibusawa. I do think the Japanese model needs a better narrative and storyteller like you. What I worry about is that most emerging markets have been copying American capitalism and the American model without thinking about the consequences. Well done, Jesper.
Such a good treatise from Andrew McDermott. Covers everything, and I couldn't agree more. Although, it is hard to know whether choosing Japan's exact path would have ever been possible for the US at times, it is clearly true that the US needs to model many aspects of Japan's strategy. The narrative is part of the problem. The US never succeeds to see the world from Japan's perspective, or to understand that many of its refined choices are actually applicable to US domestically. I spent my life trying to explain Japan's choices to Americans, attempting to unveil the positive. After nearly 40 years of this, can't say I've ever really fully succeeded. But what I can say, is that when it is so clearly explained as Andrew has done in this piece, it does manage to convince a few. So, great effort. Well done.
Thank you for sharing this. My father worked as a Naval Architect and Shipbuilder in Japan for 6 years, arriving in Hiroshima in 1953 from George Campbell & Co, Naval Architects of Montreal. His firm had been awarded a contract to design a line of cargo ships under the Marshall Plan and many of the ships were built by Mitsubishi at their Hiroshima Dry Dock facility. He loved Japan and would have stayed despite being a gaijin, but he was offered a job as Chief Naval Architect at Blohm+Voss in Hamburg where he met my mother, who was teaching in Lübeck at the time. My father retained a life long admiration and love for Japan and their people for the rest of his life and I grew up in a house surrounded by Japanese (and Indian, but that is another story) art and culture.
Andrew, this is a brilliant observation of Japan's execution, but I would challenge the label 'Pax Nipponica.' In the ChinArb framework, Japan can not be a new independent pax (a second System B / China); it is securing its role as the Chief Operations Officer (COO) of System A.
1. The Transplant Test: Arizona vs. Kumamoto You mention TSMC. This is the ultimate litmus test for the West's re-industrialization. System A (US) tried to transplant the chip supply chain to three soils:
US (Arizona): Massive friction, culture clash, delays. (Organ Rejection).
Europe (Germany): Bureaucratic paralysis.
Japan (Kumamoto): On time, under budget, seamless. The Verdict: The US wants to build the 'Small Yard, High Fence,' but only Japan can. Japan isn't winning independence; it is proving it is the only viable industrial soil left within System A.
2. 'Greater Japan' = The General Contractor What you call 'Greater Japan' (Japan-Taiwan-Philippines-Australia) is precisely the 'Non-China Supply Chain Block' that Washington designed but couldn't build alone. The US is the Architect (Capital & Strategy); Japan is the General Contractor (Execution & Logistics). Japan is building the fence that the US ordered.
3. Why Japan Can't Be a 'Second China' (The Physics of Scale) A counter-argument might be: 'Why can't Japan stand alone as a third pole?' The answer lies in Scale and Strategic Depth.
The Missing Stack: System B (China) owns the full stack: Mining -> Smelting -> Manufacturing -> Market. Japan only owns the 'High-End Manufacturing' slice. It relies on System B for minerals (upstream) and System A for consumption (downstream).
The Kinetic Reality: Facing the industrial mass and missile range of System B, Japan lacks strategic depth. Without the US Nuclear Umbrella, Japan cannot physically survive System B.
Conclusion: Japan is not becoming a 'Second China.' Japan is becoming the 'Industrial Exoskeleton' for a hollowed-out America. It is a symbiotic relationship: Japan provides the Monozukuri (How to Make), and the US provides the Market and the Shield (Who to Sell to & Who Protects).
Even closer ties with India might fill in the missing piece.
Hard to disagree that China now clearly views Japan as a security threat!
Regarding PE(private equity) regulation, though, I suspect Japan is unlikely to move in that direction. We are already seeing positive PE cases in Japan—Bain’s turnaround of Skylark being a good example—and although the Seven-Eleven situation ultimately did not materialize, it suggests that Japan’s financial markets are gradually moving toward engaging more seriously and constructively with activist investors.
Didn't Bain exit Skylark after a weak IPO?
I wouldn't call parasites like KKR or Bain "activist investors". They are financial exploiters and looters.
An anecdote that reflects the change of US corporate management. In 2000, I was in a meeting with the CFO and Treasurer of a major US manufacturing company with the purpose of discussing financial markets (my expertise is FX) along with rates and their balance sheet. But the CFO started by giving a complete rundown of the firm's business segments, details about operations and changes they were implementing to improve efficiency and grow revenues and profitability. Prior to the role, he had been an operating manager within a major division. My last meeting with a CFO and Treasurer, in 2022 resulted in a demonstration of virtually no understanding of the business at hand, but a keen handle on each basis point they paid in interest.
This is an excellent article and description of how things are, I believe, and a potential path forward for the US, if we are smart enough to head down that path
Thank you for this anecdote — many cheers ;-j
The Japanese militarist /empire building faction led Japan to disaster in the 1940's. It is sad to think they might be going to do the same thing again less than 100 years later.
Calling Taiwan part of Japan is as stupid as calling the US state of Louisiana part of France. Sure, Louisiana was a French colony just as Taiwan was a Japanese colony but neither France nor Japan has the military capacity to re conquer their former colonies. One of the outcomes of World War 2 was Japan was forced to give Taiwan back to China. Any attempt by Japan to change the outcome of WW2 and argue that Taiwan is not part of China is naturally seen as incredibly provocative in China.
Japan can and does hold military exercises with and without the US practicing a sea blockade of China. But what on earth is the point of that? Japan probably could stop most civilian ships from going to China, but then China could do the same to Japan. Which country would be more damaged by a blockade? The answer is clearly Japan. China can get everything it needs to run its economy through land routes (rail and road) if it has to. Japan obviously cannot. If Japan attacks China, either over Taiwan or for some other reason and China responds by blockading Japan it would be the end of Japan as a modern economy.
In the last century Japan has tried two methods to get the resources it needs. The first was using the military to steal things, from Korea, China then across Southeast Asia. That failed. After WW2 they stopped wasting money on the military and simply bought the stuff they needed. This worked far better. In the last couple of decades, the militarist faction has been growing in power again (with the enthusiastic support of the US) and spending on the military has been increasing.
Hopefully the Japanese will think about the past failure of the militarist faction and instead choose peaceful cooperation with China.
"On 10 October 2025, the Ministry of Justice of Japan promulgated an amended ministerial ordinance that tightens the requirements and criteria for the “Business Manager” visa in Japan. Under the new rules, the minimum capital requirement will be raised to 30 million yen (six times the previous amount). Additional requirements include Japanese language proficiency, management experience, and the employment of full-time staff." - https://kpmg.com/xx/en/our-insights/gms-flash-alert/flash-alert-2025-195.html
Thank you for an excellent article. Just a small correction... KIOXIA does not manufacture DRAM, and is in fact suffering from high DRAM prices because it needs to purchase it externally for controller circuits of FLASH memory that it manufactures. It is seeing great commercial success with its latest generation (BiCS 8) of FLASH products because for the first time in many generations it has achieved technological/cost superiority over Samsung, and is reaping the rewards.
Thank you for this correction & your attention to detail — many cheers ;-j
I think it boils down to Japan, in some sense, implementing stakeholder optimisation in a way that has positively benefited Japanese society; the ground rules and frameworks were set by the father of Japanese capitalism, Eiichi Shibusawa. I do think the Japanese model needs a better narrative and storyteller like you. What I worry about is that most emerging markets have been copying American capitalism and the American model without thinking about the consequences. Well done, Jesper.