Managing a rivalry: The latest Japan-China escalation and what Europe can do

For Japan, a Chinese attack on Taiwan would constitute an “existential crisis”. With prime minister Sanae Takaichi’s November statement came the sharpest rupture in Sino-Japanese relations in years. Then, on December 7th, Tokyo said a Chinese J-15 fighter jet aimed its fire-control radar on Japanese F-15s near Okinawa for a tense 30 minutes. The episode underscored how quickly things can escalate amid deep political tensions.

What began as a diplomatic spat over Taiwan is spiralling into something structural. The two Asian powers are edging away from coexistence in a rules-based regional order and towards strategic competition punctuated by periodic crises. For Europe, the fallout reaches well beyond Asia. The deterioration threatens global supply-chain resilience, tests the EU’s capacity for economic deterrence, and will force the bloc to further reduce its critical dependencies. Above all, it will lay bare Europe’s ability to act without being paralysed by external pressure.

A new equilibrium 

For much of the past three decades, China and Japan have managed a coexistence rooted in economic interdependence and the diplomatic frameworks set in place when they normalised relations in 1972. This arrangement was always delicate, resting on an avoidance of fundamental questions about regional order, territorial disputes, military balance and Taiwan’s status.

Takaichi’s statement broke this fragile status quo by making explicit what previous governments had kept deliberately vague. Both sides now must confront questions they had carefully deferred. The timing was not accidental: recent security strategy documents and the 2024 Defense of Japan white paper had already elevated Taiwan’s relevance in Japan’s security calculus; the prime minister’s words simply crystallised this diplomatic evolution into operational doctrine.

China’s response is a deliberate escalation: a coordinated campaign of economic coercion including travel bans affecting half a million tourists, seafood import suspensions and the cancellation of nearly 1,900 flights. But these measures can be suspended or reversed. It was Beijing’s military response that established irreversible precedent. By locking a fire-control radar—a threshold previously avoided—Beijing signalled it will continue to test Japanese and international tolerance.

The possibility of genuine Sino-Japanese reconciliation has withered. The two powers will not sever economic ties; too much mutual prosperity depends on continued trade. They are, however, entering a “managed rivalry”—where official cooperation persists while underlying strategic competition becomes the organising principle. In other words, both capitals will likely maintain diplomatic channels, resume high-level visits once immediate tensions cool and continue bilateral trade. But beneath the surface lies a fundamentally different relationship of cold strategic calculation, periodic economic coercion and military incidents that test each other’s resolve.

Japan will likely accelerate its military modernisation and deepen its security ties with America and regional partners like South Korea and Australia. It is also diversifying its supply chains, suggesting that Tokyo sees economic and military resilience as inseparable components of deterrence. China, on the other hand, will continue to demonstrate it can inflict economic costs on Japan while maintaining military pressure. This combination is also a warning to other regional actors that close alignment with Japan carries risks. Neither side will achieve a decisive victory. Instead, they will likely settle into a new equilibrium of lower cooperation and higher tension.

The fallout

The deep economic ties between Japan and China have not moderated their behaviour in the face of strategic competition. Rather, they give China more ways to pressure Japan. Beijing has been quick to weaponise tourism, agriculture and semiconductor supply chains when its strategic interests are at stake.

The European Commission recognised this reality in its recent Economic Security Joint Communication, which identified the use of economic tools to advance strategic objectives “a defining feature of today’s geopolitical landscape”. It seems the EU has accepted that economic and military security cannot be separated, and that the bloc must invest in supply chain resilience even when such investments carry short-term costs.

Taiwan’s semiconductor position crystallises this threat for Europe. The country produces over half of the world’s semiconductors and 90% of the most advanced chips. A Chinese blockade of Taiwan would create cascading disruptions through European automotive, defence, aerospace and consumer electronics industries within weeks. The EU’s trade with Taiwan reached €77.6bn in 2023, with imports dominated by high‑tech products such as integrated circuits, while early 2025 data indicate this trade is increasingly concentrated in precisely the advanced technologies on which European industry and defence depend.

If Beijing successfully constrains Japan through economic pain and military intimidation now, it will be unable to contribute to regional stability when it matters most

Japan occupies a pivotal geographic position in any Taiwan scenario. Its Okinawa-based installations, the Yokosuka Naval Base and logistics infrastructure serve as the hinge between US forces, regional allies and Taiwan’s defence perimeter. A successful Chinese coercion campaign against Japan would fundamentally compromise the West’s ability to deter or respond to an attack on Taiwan. A Chinese naval blockade near Taiwan would also strangle Japan’s own trade lifelines. Tokyo’s capacity to respond to a Taiwan crisis is therefore dependent on having already invested in supply chain resilience and defence partnerships before any confrontation emerges. If Beijing successfully constrains Japan through economic pain and military intimidation now, it will be unable to contribute to regional stability when it matters most.

The new US National Security Strategy places Taiwan deterrence front and centre, stating that “preventing war in the Indo-Pacific” is a paramount objective and that alliances should be anchored in both security and economic concerns. This language suggests Washington expects its allies to contribute not just militarily but with economic coordination and supply chain resilience. Europeans cannot avoid this new reality. Not aligning with the US on economic security frameworks risks sidelining EU interests and standards, and will make the bloc a less credible partner in any future Indo-Pacific crisis. 

Resilience over rhetoric

Europeans should support Japan in its confrontation with China by relying less on statements about rules-based order and more on tangible coordination on supply chain resilience and contingency planning. The EU and Japan have committed to combating “economic coercion”, but implementation remains minimal. This must change. The EU should diversify more of its semiconductor supply chain away from China by deepening partnerships with Japan, South Korea and Taiwan. The bloc’s proposed bilateral investment agreement with Taiwan should also be fast-tracked. With Japan, the EU could set up joint task forces on critical supply‑chain vulnerabilities to dedicate funding mechanisms for alternative sources of semiconductors and rare earth elements.

Most importantly, the EU should agree with like‑minded partners on a set of pre‑defined responses to economic coercion: from joint statements and coordinated WTO action to targeted investment screening or sector‑specific measures when red lines are crossed. These measures should be framed not as “taking sides” but as defending the basic norm that market access cannot be used as a geopolitical weapon. Regarding the recent spat with Japan, the EU should signal this through visible diplomatic support, closer coordination on economic security tools, and a clear message to Beijing that further coercion will carry broader costs for EU–China relations, not just for bilateral ties with Tokyo.

The Japan-China crisis is a test of whether Europe’s allies will accept Beijing’s redefinition of what is an acceptable use of coercive power. Each concession, each acceptance of a radar lock that would have been unthinkable five years ago, establishes a new norm. Europe’s response will signal not only to Beijing but to the entire Indo-Pacific region if it can take its own and its allies’ security and economic interests seriously.

Coordination on supply chain resilience and collective responses to coercion is not charity towards regional partners—it is an investment in Europe’s own ability to navigate a region where power increasingly flows through supply chain chokepoints and regulatory standards. The EU must more closely integrate economic security into its Indo-Pacific strategy and establish the institutional frameworks that will stabilise the region and protect European prosperity in the years ahead.