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The Role of the Private Sector in Economic Security: Reflections from Japan-US and Public-Private Relations Perspectives

Kohei Takeda

Introduction

In recent years, Japan, the United States, and other major countries have successively introduced legislation and policies related to economic security. Think tanks and academe are busy producing analyses of economic security. However, their focus has been on government policies, and it seems that their research efforts have not focused on the role of the private sector (business entities) despite its importance, which is the primary driver of economic activity and technological development.

Of course, it is the government that takes the lead in formulating and implementing economic security policies. In Japan, the Economic Security Promotion Act was enacted in May 2022. The act consists of four pillars, including strengthening supply chains and supporting the development of key and advanced technologies. As part of economic security measures, a security clearance system that limits the number of administrators of confidential information is also scheduled to be implemented in May this year.

However, the results of this series of policies are often influenced by the efforts of business enterprises. For companies that make independent management decisions while fulfilling their fiduciary duties to shareholders, the increased costs associated with regulations are hard to overlook, and they are by no means entities that will meekly follow the government's orders. Under these circumstances, how should private companies, large economic actors at the forefront of global economic activity, engage in Japan-US economic security policies?

In this paper, with this awareness and in the capacity as a Japanese researcher studying in the United States, particularly as one associated with Harvard University's Program on US-Japan Relations, I will first provide an overview of economic security-related trends in the United States, Japan's only ally and the world's largest economy. I will then trace the evolution of the conceptual definition of economic security and the reactions of Japanese and US private companies and explore insights into the role of the private sector in Japan-US economic security cooperation amid the new US-China Cold War, with a focus on the configuration of public-private relations.

1. US Economic Security Policy

1.1 From the First to the Second Trump Administration

Looking back at economic security in the United States, the first Trump administration (2017-21) began to use the term "economic security" externally in the "National Security Strategy" released in December 2017.1 The document explicitly mentioned economic security's direct relationship with national security, stating, "Economic security is national security."

The document mentioned the keyword "economic security" only once, the term "private sector" 20 times, which is the key in this analysis—incidentally, the conceptual opposite "public" 19 times. For example, "Leverage private capital and expertise to build and innovate" or "The Department of Defense and other agencies will establish strategic partnerships with U.S. companies to help align private sector R&D resources to priority national security applications." Meanwhile, the words "industry/industries/industrial" related to the industry sector appear 30 times in total in contexts such as "improve American infrastructure" and "encourage homeland investment."

During his first administration, Trump's specific economic policies included the indiscriminate imposition of additional tariffs on imported goods and the passage of the Export Control Reform Act (ECRA), which provides a legal basis for preventing the outflow of key technologies overseas. In formulating the National Security Strategy, the administration obviously kept in mind that the role of the private sector/industry, the engine of economic activity, is crucial in ensuring the country's economic security.

The Biden administration (2021-25) tightened export control as an economic security policy measure with China in mind, fundamentally following the guidelines adopted by the first Trump administration.2 Specifically, the Commerce Department's Bureau of Industry and Security (BIS), in charge of export control, expanded the scope of control based on the Export Administration Regulations (EAR). Using the Entity List in the EAR, the administration listed entities contrary to the national security and foreign policy interests of the United States and entities that may be involved in the proliferation of weapons of mass destruction. On top of these, the Biden administration passed domestic legislation such as the Uyghur Forced Labor Prevention Act (UFLPA), the CHIPS Plus Act, and the IRA (Inflation Reduction Act).

Externally, the Biden administration further refined its approach to one of achieving economic security goals, emphasizing securing advanced technology and mineral supply chains. It pursued a derisking strategy toward China and strengthened partnerships with principal allies through friend shoring.3 The administration's pursuit of its economic security goals was underscored by various initiatives, including the US-Japan Agreement on Strengthening Critical Minerals Supply Chains, the so-called "Chip 4 Alliance" between the United States, Japan, South Korea, and Taiwan, and the US-Netherlands-Japan Agreement on Semiconductor Export Controls to China.

At the Hiroshima Summit held in May 2023 during the Biden administration, the G7 issued for the first time a statement including the phrase "economic security" in the document title.4 The statement mentions seven areas closely related to economic activities of the industrial sector, such as "Building resilient supply chains" and "Building resilient critical infrastructure," to name just two.

The second Trump administration, which took office in January 2025, has turned out to be as was forecast—a swing back to anti-liberalism in domestic policy, a leaning toward protectionist foreign policy with a watchword "America First," and a shift from cooperation with allies to bilateral deals. As it did during its first term, the Trump administration has resorted to the broad use of additional tariffs, imposing 10 to 25% additional tariffs on all imports from China―the United States' largest strategic competitor, Mexico, and Canada (As of this writing, February 2025). Unlike the Biden administration, the second Trump administration features unpredictability and discontinuity in policy, and, as a result, uncertainty is spreading in society. Business enterprises at home and abroad are expressing concern.

1.2. Economic Security Definitions and US Think Tanks' Views

Next, I will touch on briefly how the concept of "economic security" is defined by US think tanks and academe. Economic security is composed of the two general terms "economy" and "security" and still carries some ambiguity, with its meaning changing depending on the context in which it appears.

In the United States, "economic statecraft" proposed by Baldwin (2020), which aims to realize the interests of a state through economic means, has been well known as a concept analogous to economic security.5 Blackwill (2016) discussed war without weapons;6 his argument on geoeconomics, the intersection of economics and geopolitics, also gains currency. On the other hand, many scholars, represented by Dynan (2009), studied economic security from the perspective of household finances, such as employment and wages.7

A review of White House statements issued during the Biden administration shows that the term "economic security" was used only occasionally, and even when it appeared, it was often in the context of household finances, as noted above. For example, the statement "The Biden Economic Plan is Working," released in February 2023, employs the expression "economic security for families."8 Another statement released in September 2024 bears the title "Support Women's Economic Security," emphasizing the context of economic stability for families and women.9 The latter is presumed to have intended to appeal to voters with the presidential election in November of the same year in view.

As noted above, the term "economic security" appeared in the title of the joint statement at the Hiroshima Summit, but it was not defined anywhere in the document. Nevertheless, the seven areas outlined in the statement appear in the context of national security, which is related to the two significant concepts set for economic security goals: "strategic autonomy," or reducing excessive dependence on a specific country for strategic materials, and "strategic indispensability," or becoming an indispensable member in the international community.

The Atlantic Council, a US think tank, compiled a list of definitions for various concepts similar to economic security, such as economic statecraft, and has defined economic security as "the policies and strategies adopted by states to ensure resilience and stability of their economies in the face of internal and external threats. Economic security involves safeguarding and nurturing critical industries and resources deemed essential to national survival, such as energy, technology, agriculture, and defense-related industries. It also involves promoting supply chain resilience, building resilient critical infrastructure, defending against nonmarket practices, and addressing economic coercion."10

As of this writing (February 2025), the second Trump administration has not made any public statements about economic security since taking office. However, it has formulated policies in succession that resemble those described in the Atlantic Council's definition. On January 20, 2025, the day President Trump took office, the US think tank The Center for a New American Security issued a report stating, "The Trump administration should publish an official economic security strategy."11

What views emanate from leading US think tanks on how the private sector will engage in economic security?

Matthew Goodman of the Council on Foreign Relations (CFR), an eminent expert on economic security well-known also in Japan, enumerates coordination efforts along three vectors required for realizing an effective economic security policy:12 (1) coordination "within the U.S. government itself, where relevant legal authorities are spread among multiple agencies," (2) coordination "between government and the private sector, as the latter undertakes most of the activities—technological development, exporting, and supply-chain management—that are the target of economic security policy," and (3) coordination "among allies and partner countries, because alignment of approaches is essential to keeping sensitive technologies out of adversaries' hands and ensuring truly resilient supply chains." He stressed the importance of the second challenge, or cooperation and interest coordination between the government (the public sector) and the private sector.

Jonathan Hillman, also a CFR member conversant with economic security, told me in an interview in February that "The US government is trying to figure out what incentives it can provide to basically move larger amounts of private capital to areas where it wants it to be." From the above, it can be concluded that the key to an effective economic security policy is for the government to maximize incentives for private sector involvement and to encourage cooperation with them.

Other papers frequently cited in academic journals also suggest the significance of public-private cooperation in the economic security context with China in mind. In his well-known paper "Collective Resilience," which analyzes cases of economic coercion by China, Victor Cha (currently Korea Chair at CSIS) argues that "Governments in consultation with the private sector would need to devise a suite of industrial, tax, and related policies."13

2. Trends in the Private Sector

2.1 Public-Private Relations in the Era of Economic Security

To analyze precisely public-private relations in the times of economic security, I will discuss this topic based on a conceptual framework proposed by Kohei Tamaoki, who boasts a career spanning both the public and private sectors, including the Ministry of Foreign Affairs and Marubeni Corporation. Tamaoki argues that "considering the inherent tension between the state and the market, it is not necessarily self-evident that governments and business enterprises will work together to pursue national security." With that in mind, he presents three models of public-private relations in economic security and considers their implications.14 An outline of each mode is as follows:

(1) Externality model: The impact of corporate activities on national security is considered an externality, and the government controls the externality through policy intervention. When corporate activities have a positive externality that contributes to national security, the government is justified in providing incentives for enterprises and promoting specific corporate activities. Subsidies for the domestic production of strategic materials, which is often commercially unprofitable, would be an example.

(2) Governance model: The government disciplines enterprises to accurately assess and control economic security risks. In this model, the government indirectly influences enterprises through the market; its main policy focus is to create an environment that strengthens governance.

(3) Power relationship model: The public-private relationship is asymmetric. The state controls and mobilizes enterprises to realize its national interests and, at the same time, represent and protect their interests against other countries. Under this power relationship, enterprises are required to act following the national interests of the state to which they belong, not in accordance with economic rationality, which, however, may harm the security of other countries.

According to Tamaoki, the meaning of public-private cooperation in economic security differs with the three models. In model (1), the focus is on how the government and enterprises can reconcile their perceptions regarding the impact of corporate activities on national security (security externalities). If the government overestimates negative externalities accompanying corporate activities, enterprises will suffer disadvantages to their business. Meanwhile, since the government must avoid reductions in social benefits because of its excessive regulations, public-private mutual understanding will contribute to realizing efficiency.

In model (2), the government will guide enterprises to respond appropriately to changes in the economic security situation and, as a stakeholder, indirectly influence the behavior of enterprises. The public-private cooperation in this case is assumed to be a relationship in which the government suggests the expected behavior of enterprises, and enterprises consider it in their own autonomous decision-making. Enterprises must carefully assess their risks, consider the sometimes conflicting views of various stakeholders, and present a compelling strategy for enhancing shareholder value.

Model (3) emphasizes the asymmetry between the public and private sectors. Their relationship approaches that of the private sector's subordination to the public sector. In this context, the extent to which corporate autonomy is secured varies depending on the situation. An enterprise's power relationship with a foreign country may raise the vigilance of other countries in opposition to that very country. As, in this way, international relations become confrontational or the power relationship intensifies, the enterprise's overseas business activities will be much affected. Then, that enterprise will be required to carefully consider how to manage the power relationship with the government of the country to which it belongs and what kind of actor it may look like in terms of economic security under an increasingly complex international situation.

These complexities should not be simply attributed to the particular relationship between the government and enterprises in each state. They could transform into some relationship depending on individual policies and the circumstances of each situation. If I am allowed to attempt a rough categorization based on the characteristics of each model, the United States, where, as pointed out by Hillman of the CFR, the government has been exploring how to provide incentives to private businesses, has an affinity with model (1); Japan, where the government has externally exhibited a perspective of encouraging voluntary action by enterprises (Basic Policy on the Promotion of Ensuring Security through Integrated Implementation of Economic Measures15), has an affinity with model (2); China, which has a strong state-led public-private relationship, has an affinity with model (3).

Given what a state and an enterprise seek after, a state is an entity that pursues national interests in a broad sense. Meanwhile, an enterprise (management) has a fiduciary duty to shareholders; it is only natural for an enterprise to try to avoid unnecessary risks and costs as much as possible to maximize shareholder value (profits/corporate value).

2.2 Response from Japanese Industry

Based on the above discussion on public-private sector relations, let us trace changes in the perceptions of and responses from the Japanese and US private sectors regarding economic security. First, regarding the domestic industry, principal economic organizations have since a few years been proactive in engaging in economic security by, for example, disseminating the keyword "economic security."

For example, in its "New Growth Strategy" released in November 2020, the Japan Business Federation (Keidanren) included a section titled "Ensuring proactive and strategic economic security," stating that "we must identify fundamental technologies, emerging technologies, and strategic goods that are essential to ensuring Japan's economic security."16 In April 2021, the Japan Association of Corporate Executives published a proposal entitled "Toward the Establishment of Robust Economic Security."17 In October 2021, the Japan Association of New Economy included the phrase "economic security" in the subtitle of its new policy document, "New Growth Strategy under the Digital Economy," and devoted one of its four chapters to the analysis of economic security.18

Before the Economic Security Promotion Act took effect in May 2022, Keidanren, the Japan Chamber of Commerce and Industry, and the Kansai Economic Federation (Kankeiren) jointly released a proposal in March of the same year, "Calling for Swift Enactment of the Economic Security Promotion Bill."19 Based on the final report of the expert panel on the security clearance system, Keidanren and the Japan Association of Corporate Executives announced their views on the new system in February 2024.

Individual enterprises set up specialized departments to deal with economic security risks. For example, Mitsubishi Electric Corporation established a Corporate Economic Security Division on October 1, 2020, as an organization immediately under the president.20 The company explained the mission of the Division as "comprehensively managing economic security risks throughout the entire company's business, including exports, information security, investments, and development" through "researching and analyzing the rapidly changing economic security policies and legal systems of countries worldwide."

Reportedly, other leading Japanese companies have set up in-house specialized organizations to collect economic security information and analyze potential geopolitical risks.21 Hitachi, Ltd. established an economic security office in April 2022 within its external relations division. The office, under the supervision of an executive managing director, will strengthen information gathering and hold in-depth debates with related departments. IHI Corporation established the Economic Security Division in October 2021 to help technology development based on the Economic Security Promotion Act. In addition, major domestic companies, such as DENSO CORPORATION, Fujitsu Limited, CANON INC., and KIOXIA Holdings Corporation, established their specialized economic security departments in 2021-2022.22 Thus, there is a notable move among individual companies to collect and analyze related information to respond to economic security risks and to utilize acquired information and analyses for their management strategies.

The previous section of this paper points out that Japan's public-private relations have an affinity with the "governance model" in which the government disciplines companies to properly assess and appropriately control economic security risks. This is partly evidenced by the behavior of individual companies.

Nonetheless, no small number of Japanese enterprises appear at a loss over how to respond to economic security issues. "Geopolitics, Economic Security, Risk Survey 2024," published by KPMG Consulting Co., Ltd. in May 2022, states that a survey of approximately 300 leading Japanese enterprises reveals that only 7.2% of them have an in-house specialized department related to economic security.23 Security clearance, which limits the number of people who handle confidential information, was not institutionalized at the time of the survey; 14.3% of respondents said they were "considering" implementing them, while approximately half (50.7%) of respondents said they "do not understand the system enough."

Regarding the implementation of human rights due diligence in conflict-affected and high-risk areas, relevant efforts made to this end include: "Continuously monitoring the situation in conflict-affected and high-risk areas" (18.9% of respondents), "Identifying and evaluating the impact of business activities on conflict in addition to responding to human rights violations" (8.5%), and "Conducting dialogue with employees and stakeholders affected by conflict" (5.5%). Only less than 20% of respondent companies worked on these efforts, while those who answered that they made "none of the efforts" accounted for a majority of 44.5%. Although many leading Japanese enterprises recognize the significance and necessity of relevant action, they confess their inability to respond adequately due to, among other reasons, a shortage of staff.

2.3 Response from the US Industry

US private sector response differs from Japan's. As outlined in "1. US Economic Security Policy," the concept of economic security appears to have gained a certain degree of understanding and penetration among US government organs and think tanks. Meanwhile, in the US private sector―as far as I have investigated―, almost no enterprises have externally emphasized "economic security," in stark contrast to Japan, where economic organizations and individual enterprises are busy making related proposals and responses.

I do not mean that the term "economic security" itself matters. Nonetheless, in a report on improving critical US supply chains compiled in June 2024 by the Business Roundtable, a US management organization, the term "economic security" appears only twice in contexts of securing critical industrial supply chains and vital mineral resources.24 No American companies are confirmed to have set up additional "economic security" departments like their Japanese counterparts. To sum up the above think tank insights, however, it is customary for major US business enterprises to have their in-house intelligence functions to handle business risk management. As geopolitical risks increase, consulting firms that claim to provide solutions are expanding their services at home and overseas; in a sense, American companies seem to feel little need to create a new specialized department in their setup.

Operational challenges facing globally operated Japanese and US companies overlap with economic security in many areas, regardless of whether the term "economic security" is employed to describe those challenges. On the other hand, there is a backlash among US companies against economic security-related policies that lead to increases in operational costs. Behind this is that executive compensation is generally among the world's highest, and the pressure to maximize profits and shareholder value is greater than in Japan.

In this connection, let us take up restrictions on Huawei, a major Chinese telecommunications equipment manufacturer. In June 2019, the name of Huawei was added to the "Entity List," which prohibits enterprises from purchasing parts and other items from US companies without the US government's permission. The restrictions on Huawei were strictly enforced for a year and a half from 2019. However, according to a Canon Institute for Global Studies report, relevant operating regulations were gradually eased, and 99% of US companies' applications to trade with Huawei were approved, resulting in trade volume with Huawei reaching approximately $350 billion in just over five years.25

The US government requested Japan and the Netherlands to restrict exports of critical technologies to China. On the other hand, it did not inform other countries of the state of the deregulation in the United States. Other countries criticized the US government for its lack of concern for transparency in policy administration and for ensuring equity. US industry has strongly protested the US government's trade and investment restrictions on China; the reality is that even if Congress passes a restrictive, harsh law, the administration has no choice but to relax the restrictions in practice. Reportedly, US companies continue to actively supply Chinese companies, so to speak, pretending to obey only to betray.

In contrast to Japan, where an increasing number of enterprises take various steps related to economic security, the idea of "economic security" is not yet widely recognized among American companies. Nevertheless, the executive of a major semiconductor company interviewed in February of this year mentioned the term "economic security," stressing its significance. Although I cannot identify his company here, it is a semiconductor manufacturer with its headquarters in Asia; the United States is one of its major markets. This person, an American, is a registered lobbyist in Congress to negotiate with the US government on behalf of the semiconductor company. The following is an excerpt from the interview.

First, regarding economic security in general, the executive says, "Economic security is an extremely important term, and it's important for the United States to understand what types of products should be built domestically to ensure economic security. Specifically, it's extremely important for leading bleeding edge semiconductors to be made here. Those advanced chips are used in lots of different ways, for super computers, for military weapon systems, for AI end users.

Regarding semiconductor manufacturing in the United States, the executive points out that "It was President Trump's leadership and his ideas in 2019 and 2020 which encouraged our investment here, given the critical importance of advanced semiconductor fabrication. He had the insight, and then we had to set up a statutory based program, the Chips Act, to follow through."

His company is not an American one; he says that "it doesn't matter." He adds that, "The importance is that able to make the most advanced chips onshore, but that requires an incentive to do that. That's where the appropriation through the Chips Act is so important."

He also states, US-Japan cooperation is also "absolutely vital" and continues, "Japan and the United States are longtime friends, security partners, and democratic allies in the Pacific Rim. Japan and the United States stand together in terms of semiconductors. Japan and United States's economic security and national security, both are lifted and reinforced. It's a win-win for us as well." He says the company's position as "US national security is paramount. Company abides by the letter and the spirit of whatever decisions get made."

Regarding the US public-private relationship, I have pointed to its affinity with the "externality model" in that the government has been exploring how to provide incentives to private companies. However, under the second Trump administration, the US public-private relationship is increasing its affinity rather with the "power relationship model," as the administration issues a series of presidential orders to impose additional tariffs on China and other countries, while under the leadership of private sector entrepreneur Elon Musk, DOGE (Department of Government Efficiency) is carrying out the mass dismissal of government employees.

3. The Potential Role of the Private Sector

So far, we have looked at the evolution of US economic security policy, the definition of the term "economic security" by US think tanks, and the responses of the Japanese and US private sectors viewed from the public-private relations models. As the above-mentioned executive of a major semiconductor company pointed out, Japan and the United States, as allies, should promote economic security cooperation, including the economic security version of "2+2," and join forces with private companies, focusing on semiconductors and the supply chains of critical mineral resources, and the development of AI, which are essential for the development of advanced technologies.

The practical cooperation required in this context involves not only public-private relations at home but also cooperation between allied governments (public-public) and engagement between companies and the governments of the countries in whose markets they operate (public-private).

For this purpose, keeping in mind the three models of public-private relations mentioned above could be helpful for both governments (public) and companies (private) to align their interests. As noted above, under the Trump administration, the model applicable to the United States is shifting from "externalities" to "power relationship." Japanese companies operating in the US and Chinese markets should make autonomous business decisions based on short- to medium- to long-term timeframes

Under mounting pressure to expand profits, US enterprises are actively lobbying behind the scenes. On the contrary, Japanese enterprises are not of two minds but almost simply obedient to the government; however, as far as their Chinese business is concerned, for example, which has little to do with security/military-related advanced technologies, Japanese companies should improve their intelligence capabilities and maximize profits both overtly and covertly. Enterprises (management) not only have fiduciary duties to shareholders but are also employers of employees; it may be a truism, but their efforts to maximize corporate profits will ultimately contribute to economic security or the national interest in the context of household finances through, among other things, wage increases.

（Research Associate, Weatherhead Center for International Affairs at Harvard University）

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