The Renaissance of Japan's Industrial Policy - Japan and the Global "Chip War"

Proposal for Section 37: Managing transitions: political economy and welfare state change in a turbulent era Panel: Industrial policy and state subsidies across time and space The Renaissance of Japan's Industrial Policy - Japan and the Global "Chip War" Steven Schwarz (Heidelberg Academy of Sciences and Humanities/ University of Heidelberg) Paper presented at the General Conference 2025 26 – 29 August, Aristotle University of Thessaloniki 2025 Amidst great power tensions and a weakened WTO, the world is witnessing an increasing tendency towards industrial policy. With the Biden Administration’s ambitious CHIPS and Science Act and the Inflation Reduction Act as a response to both inflationary effects caused by the COVID crisis and China’s aspiration for technological and economic dominance, the United States seems to have ushered in a new era of geo-economic competition. Eclipsed by the United States’ new geopolitical “industrial policy”, however, the Japanese government launched its own agenda of industrial policy, labelled as “economic security” and focused primarily on semiconductor manufacturing. Based on vast subsidies and export restrictions, Japan’s industrial policy in 2024 reached a total spending into chip-making that amounts to 0,71 percent of its GDP, thus outspending the U.S. and Germany in their efforts to boost their domestic semiconductor manufacturing. In this paper, I investigate how and why the Japanese government came to usher in this new industrial policy, shedding light on the adoption of the Japanese Economic Security Promotion Act, Japan’s export restrictions on chip-making devices, and the establishment of the state-backed semiconductor manufacturer “Rapidus” in 2022. By drawing from Kingdon’s Multiple Streams Framework and contemporary theories on growth strategies in advanced economies, I first theorize how problem, policy and politics streams are shaped by both economic considerations as well as security and foreign policy debates and events. My argument is that Japan’s “economic security”- labelled industrial policy was prompted by a combination of growth-oriented policy preferences based on public-private coordination and external dynamics caused by the U.S.-Chinese competition. By employing a mixed-method approach of quantitative analysis of macroeconomic data and qualitative process tracing and content analysis of press statements by the government and business reports by the companies involved, I then empirically analyze the causal process that led to the adoption of Japan’s economic security policy. My findings suggest that Japan’s industrial policy has largely been shaped by Japan’s distinct public-private institutional framework, the geopolitical competition between the United States and China and new incentives emanating from the global chip war and the “AI boom” in the early 2020s. My paper contributes to Multiple Stream Framework’s application to 21st century industrial policy in the light of new theorizing on advanced economies’ growth strategies and provides new empirical insights into Japan’s contemporary economic policy-making and its institutional framework.