U.S. and Japan launch economic dialogue to push back against China, Russia

© Reuters. FILE PHOTO: Semiconductor chips are seen on a circuit board of a computer in this illustration picture taken February 25, 2022. REUTERS/Florence Lo/Illustration

By Simon Lewis and David Brunnstrom

TOKYO (Reuters) -Long-time allies the United States and Japan launched a new high-level economic dialogue on Friday aimed at pushing back against China and countering the disruption caused by Russia's invasion of Ukraine.

Japanese media said the so-called economic "two-plus-two" ministerial meeting in Washington was expected to agree on joint research for next-generation semiconductors to establish a secure source of the vital components.

The meeting was headed by U.S. Secretary of State Antony Blinken and Commerce Secretary Gina Raimondo and Japan's Foreign Minister Yoshimasa Hayashi and Trade Minister Koichi Hagiuda.

"As the world’s first- and third- largest economies, it is critical that we work together to defend the rules-based economic order, one in which all countries can participate, compete and prosper," Blinken told the opening session.

Blinken said recent world events, including COVID-19 and the war in Ukraine, had shown the vulnerability of critical supply chains, while a growing number of countries were struggling with debt burdens due to unsustainable and non-transparent lending practices.

"The coercive and retaliatory economic practices of the People's Republic of China force countries into choices that compromise their security, their intellectual property, their economic independence," he said.

SEMI-CONDUCTORS

Japan's Hayashi called Russia’s invasion of Ukraine a serious challenge to the international order and - in an apparent reference to China, though he did not name it directly - referred to attempts "to use economic influence unfairly and opaquely to realize... strategic interests and to modify the existing international order".

"In order to effectively deal with this, it is essential to discuss foreign policy and economic policy as a unit rather than discussing foreign policy and economic policy individually," said Hayashi.

Japan's Nikkei Shimbun newspaper said the semi-conductor development center would be set up in Japan by the end of this year to research 2-nanometer semiconductor chips.

It will include a prototype production line and should begin producing semiconductors by 2025, it said, adding that the agreement to set up the center would be included in a statement to be issued after the meeting.

Taiwan now makes a vast majority of semiconductors under 10-nanometers, used in products such as smart phones, and there is concern about stability of supply should trouble arise involving Taiwan and China, which views the island as a renegade province.

Friday's meeting comes at a time of heightened tensions over Taiwan.

On Thursday, Chinese leader Xi Jinping warned in a call with U.S. President Joe Biden against playing with fire over Taiwan, highlighting Beijing's concerns about a possible visit to the Chinese-claimed island by U.S. House Speaker Nancy Pelosi.

It also comes after the U.S. House of Representatives passed sweeping legislation on Thursday to subsidize the domestic semiconductor industry as it competes with Chinese and other foreign manufacturers.