Trade, defence tensions surge in Japan-China clash over Taiwan

Japanese Prime Minister Sanae Takaichi sparked a controversy when she said that a Chinese assault on Taiwan could be deemed a “survival-threatening situation” — a legal justification allowing Tokyo to exercise collective self-defence. China claims sovereignty over Taiwan, a position Taipei firmly rejects.

Ms. Takaichi’s refusal to retract the statement caused bilateral ties to unravel at an alarming speed. The dispute has become the region’s biggest crisis in recent years, characterised by Chinese military sorties, economic coercion against seafood imports, and a blanket freeze on cultural exchange. Having failed to force a retraction, Beijing has escalated the issue to the United Nations, framing Japan’s stance as a threat to the post-war international order.

Japan’s post-war Constitution forbids it from using force as a means of settling international disputes but a 2015 law, passed when Ms. Takaichi’s mentor, Shinzo Abe, was Prime Minister, permits it to exercise collective self-defence in certain situations, even if it is not directly under attack.

The kerfuffle over Ms. Takaichi’s remarks comes just as Japan faces significant domestic headwinds. The world’s fourth-largest economy is facing slow economic growth and persistent inflation.

The Prime Minister is attempting to solve these issues with new stimulus measures. Further compounding these challenges is a long-term fertility crisis, with the country’s population growth turning negative since 2011.

Against this backdrop, a prolonged rift with China could be problematic, given that Beijing is Japan’s largest trading partner. China accounted for 20% of Japan’s imports and exports each, between 2018 and 2024.

Bloomberg notes that Japanese manufacturers rely heavily on Chinese critical materials. Reuters reports that China provides 60% of Japan’s rare earths — key components for cars and electronics.

The power of this monopoly was demonstrated recently when China used its rare earth dominance to successfully pressure the U.S. into lowering tariffs. China has told tourists not to visit Japan, stopped approvals of new Japanese firms, and restricted Japanese seafood.

Ms. Takaichi’s suggestion that Japan might intervene in a Taiwan Strait conflict underscores the importance of this maritime route to Tokyo. The chart below illustrates the total trade volume by country passing through the Strait in 2022 (excluding China). Japan stands out significantly, with over $440 billion in trade relying on this waterway.

Much of the trade between the two neighbours would be disrupted if tensions in the Strait rise. Taiwan is a vital trading partner for Japan, particularly for critical technology. In 2025 (till September), Japan sourced 60% of its integrated circuits and over 50% of its semiconductors from Taiwan, along with significant volumes of electrical machinery.

Tensions are also mounting over the military implications of Ms. Takaichi’s remarks. In 2025, Japan’s defence spending hit a 70-year high of 1.8% of GDP, a level not seen since the 1950s.

On Wednesday, Taiwanese President Lai Ching-te said that his government is going to propose $40 billion in additional defence spending in the coming years.

In 2024, Japan’s forces ‘scrambled’ over 700 times in response to Chinese and Russian aircraft violations. A ‘scramble’ refers to the emergency dispatch of aircraft by the country’s Air Self-Defence Force when an unidentified aircraft is suspected of violating Japanese airspace.

The data for the charts were sourced from the World Bank, the Centre for Strategic and International Studies (CSIS), UNCOMTRADE, SIPRI, Defence of Japan 2025, and e-Stat: a portal site for Japanese Government Statistics.