Why do we characterize the Australia-Japan relationship as special? After all, both have strong relationships with other countries such as the US, China, UK and India. The US is a military alliance partner of Australia and of Japan and China is the largest trading partner of both countries.

The answer lies in the unique combination of economic, cultural and political factors, which I believe no two other countries share. The core and enduring economic relationship thrives on the complementary nature of resources-rich and capital-poor Australia and resource-poor but capital-rich Japan. Both are developed liberal economies, sharing the same values of governance and property rights. These values have allowed the fundamental complementarity to expand and diversify into downstream value chains characterised by advanced technology and intellectual property.

Decades of reliable business relationships have created the invaluable asset of trust that underwrites the exploration of new opportunities for collaboration. Trust is abundant throughout the bilateral relationship including at the highest levels. Australian Prime Minister Morrison was the first leader to talk to congratulate Japan’s new Prime Minister Suga and to commit to meeting in person in Tokyo. Our Foreign Minister Payne was also the first to call Japan’s reappointed Foreign Minister Motegi. While everyone says that leadership changes in either country will not disrupt the relationship, these necessary steps show it’s important to walk the walk.

Exploring new complementarities can also be called new ways of collaboration (as the AJBCC notes: https://www.ajbcc.asn.au/2020/09/australia-japan-business-collaboration-what-it-looks-like/). This search has become more urgent currently due to two powerful drivers. Firstly, the COVID pandemic has exposed many countries’ over-reliance on a small number of suppliers for critical health goods such as pharmaceuticals, masks, protective gear and ventilators. Both Australia and Japan need to diversify the sources of supply and may be able to collaborate. Secondly, there is a definite shift emerging away from China-centric regional and global supply chains. As leaders in the Indo-Pacific region, Australia and Japan will be looking to collaborate with each other and like minded nations such as the US, India and Vietnam to create new supply chains. Canberra and Washington have both reaffirmed to Tokyo the importance of the Indo-Pacific as a key region for future development.

These explorations would not succeed without the deep trust that runs through the whole fabric of the bilateral relationship. Nor could they succeed without the foundation of the decades of investment by Japan and the US in Australia and in South East Asia. Japan is the largest and the US second largest investor in ASEAN by a wide margin. In Australia, the US is the largest investor and Japan is third. There are also best practice Government led initiatives that underpin private sector involvement. For example, the Trilateral Infrastructure Partnership, a collaboration supported by JBIC, Export Finance Australia and the US International Finance Development Corporation, aims to promote new infrastructure for developing countries at OECD-level transparency and sustainability.

Whether it is the development of new supply chains for health needs, the establishment of new infrastructure or the development of new energy supply or logistics networks, Australia and Japan can work together and produce concrete results and resilience for each other and for the whole region.

Author: Manuel Panagiotopoulos

Managing Director, Australian and Japanese Economic Intelligence