'Takaichi cost': Japan's post-peak industry struggles with a stronger rival

Editor's note: Lin G. is a CGTN economic commentator. The article reflects the author's opinions, and not necessarily the views of CGTN.

Something has shifted in Japan – and it is not just policy. When Tokyo downgraded its description of relations with China in its latest diplomatic bluebook, the change was a signal. Not about diplomacy but about the erosion of its confidence in industrial competition with China.

To understand what is happening in Japan today, one has to start from the structure that has defined the country's economic and political order.

Japan's post-war system was never simply a liberal political framework in the Western sense. At its core, it is anchored by a small number of powerful industrial groups – such as Toyota, Mitsubishi, Hitachi and the Sumitomo Group – whose influence extends far beyond the market and into the formation of political will itself.

In this structure, political leaders are not isolated decision-makers. They are, to a large extent, expressions of a broader industrial consensus. Figures such as Japanese Prime Minister Sanae Takaichi represent not just a personal stance, but a moment in the evolution of that consensus.

That is why the recent shift in Japan's posture toward China should not be read as a purely political signal. It is, at a deeper level, an economic reaction that reflects how Japan's core industrial actors are reassessing their own positions in the cooperation and competition with China.

For decades, Japan's manufacturing sector occupied a near-monopoly position in many high-end segments. From precision machinery, the backbone of industrial production, to a wide range of globally recognized end products, Japanese firms were not just competitive; in many cases, they defined the standard.

But that dominance has been gradually eroding.

A decade ago, even when products were "Made in China," the high-end equipment used to produce them was often imported from Japan. Walk into a Chinese manufacturing facility at that time, and the core processing machines that determined precision and quality were overwhelmingly Japanese.

Today, that picture has changed. Japanese equipment is still present, but no longer uncontested. Domestic Chinese machines have not only scaled up, in some cases, they have surpassed their Japanese counterparts in processing precision and performance. The technological gap that once justified Japan's industrial premium has narrowed and in certain niches, it has flipped.

The same shift is happening at the level of final products. Chinese automobile companies such as BYD are overtaking Japanese legacy leaders such as Toyota in several markets. For Japan's core industrial groups, this is considered a structural loss of ground.

Something more dangerous: Loss of will

Faced with this shift, the critical question for Japan is how they would face it. What we are seeing is not a rational decision to reposition, but being unable to respond.

From the perspective of Japan's core industries, the situation increasingly looks like this: Even if engagement with China continues, Japanese firms' market share will still be lost. Technological advantages will still be challenged.

And once that conclusion takes hold, behavior shifts.

When competition is still seen as winnable, the instinct would be to engage, to learn, to adapt, to maintain presence in the very markets where pressure is greatest. That is the mindset of a system that still believes in its own upward potential.

But Japan's response appears to be more emotionally driven: If cooperation does not reverse decline, then deeper engagement loses its meaning.

This is frustration. And that is precisely why it is dangerous, because the costs that follow would be immediate shocks. If Japan continues down this path in its increasingly negative posture toward China, the consequences would take the form of concrete countermeasures from Beijing. The impact would then feed directly back into Japan's own economy: Its export dependence on the Chinese market would come under pressure, and supply chains deeply intertwined with China would face disruption.

This is where the "Takaichi cost" takes on its short-term meaning.

In the long term, reduced engagement with China means reduced participation in one of the most dynamic industrial ecosystems in the world. Over time, this would limit Japan's ability to remain at the technological frontier.

What makes this even clearer is the contrast with Germany. Faced with similar pressures, Germany has largely chosen to lean in rather than step back – treating China not as a threat to avoid, but as a competitive arena to engage. As leaders from Mercedes-Benz Group have put it, the "Champions League" of the automotive industry is now in China, and maintaining competitiveness means committing more deeply to China.

The divergence comes from different responses to the same reality.

And that brings us to the final point. There are many ways to explain why Japan has arrived here. But most explanations are interchangeable: They can just as easily be used to explain the opposite outcome, had the outcome been different.

If Japan steps back from engagement with China, one could argue it is due to historical burdens, institutional rigidity, or the inward-looking nature of its corporate system. If Japan leans into cooperation with China, one could just as convincingly argue it is because of cultural familiarity, geographic proximity, and economic interdependence.

Both lines of reasoning sound coherent. And yet, they point in opposite directions, which is why, in this case, the search for a definitive structural explanation becomes less meaningful.

What we are witnessing is something more human – a shift in attitude.

For years, Japan was willing to ignore US disagreement in order to sustain economic engagement with China. But that engagement coincided with a steady erosion of Japan's once-dominant market position.

And now, the accumulated tension back in Japan is finding an outlet. What appears today is a sense of frustration from no longer knowing how to respond to a stronger industrial competitor.

And yet, precisely because it is not structurally predetermined, it is not irreversible.

The direction from here will be decided by whether that attitude can change,  whether engagement is seen not as concession but as the only viable path to remain competitive.

The "Takaichi cost," therefore, is the price of allowing a temporary loss of confidence to harden into a long-term strategic posture. And whether that cost continues to rise ultimately depends on a choice by the Japanese that has not yet been fully made.

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