Japan, South Korea and EU Focus on US Energy Investments as Manufacturing Costs Rise

Japan, South Korea and the European Union are increasingly directing investments towards the US energy sector rather than manufacturing, as high production costs and workforce shortages make large-scale industrial relocation economically challenging, according to Kazuto Suzuki, Director of the Tokyo-based Institute of Geoeconomics and Professor at the University of Tokyo’s Graduate School of Public Policy.

In an interview with The Indian Express on the sidelines of the Kautilya Economic Conclave, Suzuki described the goal of bringing manufacturing jobs back to the United States under the “Make America Great Again” (MAGA) agenda as an economic illusion. He argued that foreign companies understand the difficulties of making US-based manufacturing profitable, despite pressure from Washington to increase investment.

Suzuki also discussed the causes of global trade tensions, the growing use of tariffs as a political tool, rising defence expenditure and the challenges India faces in strengthening its position in global supply chains.

Why Foreign Investors Are Focusing on US Energy Projects

According to Suzuki, the US faces several economic barriers to restoring manufacturing on a large scale. High energy costs, expensive land and a shortage of available workers make domestic production less attractive compared with manufacturing in other countries.

He argued that these structural challenges explain why foreign governments and companies are not necessarily investing in the types of manufacturing projects envisioned by the MAGA agenda.

Instead, Japan, South Korea and the European Union are directing investments towards sectors such as energy, where projects may offer more practical commercial opportunities.

Suzuki cited six projects agreed between Japan and the US, noting that four focus on energy, while one involves manufacturing synthetic diamonds for next-generation semiconductors.

He suggested that this investment pattern highlights the gap between Washington’s political objective of bringing manufacturing back to American soil and the commercial calculations foreign investors must make.

Although the US continues to exert considerable influence because of the importance of its domestic market, Suzuki argued that market access alone cannot eliminate the underlying cost disadvantages of US manufacturing.

Free Trade, Not Just Chinese Overcapacity, Behind Trade Tensions

Suzuki challenged the argument that Chinese industrial overcapacity is the primary cause of current tariff disputes and trade uncertainty. He instead pointed to the structural consequences of free trade, which allows companies to relocate production and reorganise supply chains to improve efficiency.

Over time, these changes have moved manufacturing activity away from some economies while attracting investment to others. Suzuki said this process is not limited to China, as countries such as Japan, Brazil, India and those in Southeast Asia also participate in global production networks.

He argued that efforts to bring manufacturing back to the US conflict with the principles of free trade when they attempt to reverse these economic shifts through tariffs and political pressure.

According to Suzuki, tariffs have become an important tool for Washington because the US cannot exert the same type of direct control over private technology companies that China can exercise through its state-led economic system.

He referred to major US technology companies, including Google, Apple and Amazon, to illustrate how restrictions on their services could also damage their own commercial interests.

Suzuki therefore argued that the current US trade strategy is not solely about countering China. It also reflects Washington's desire to use the importance of the American market to influence the investment decisions of its trading partners.

Countries Must Balance Economic Efficiency With National Security

Suzuki described the growing tension between economic efficiency and national sovereignty as a lasting feature of the global economy.

During the expansion of free trade, countries prioritised efficient production and supply chains, supported by international trade rules. However, geopolitical tensions and the increasing use of economic pressure have changed how governments assess their dependence on foreign suppliers.

He argued that countries can no longer assume the global trading environment will return to the conditions that prevailed during the earlier free-trade era.

Instead, governments must decide how much economic efficiency they are willing to sacrifice to reduce strategic vulnerabilities.

Suzuki used India as an example, pointing to the country's decision to restrict China-based mobile applications while continuing to import Chinese-made smartphones. Although these choices may appear contradictory, he suggested they reflect an attempt to balance national security concerns with economic realities.

For countries with limited alternatives, maintaining access to affordable goods and efficient supply chains may remain essential. Middle powers such as India and Japan, however, have greater scope to decide where they should build domestic capabilities and where international dependence remains practical.

Suzuki emphasised that diversification does not mean completely ending economic relationships with major powers. Instead, countries need alternative suppliers, stronger research and development capabilities, and more resilient supply chains so that political pressure from Washington or Beijing does not leave them without options.

Rising Defence Spending Could Strengthen Industrial Capabilities

The intensification of trade and geopolitical competition is also contributing to greater attention to defence expenditure.

Suzuki said modern military capabilities increasingly involve technologies such as drones and artificial intelligence, which can have both military and civilian applications.

Government spending on these technologies can support industrial development, encourage innovation and create opportunities for private companies. As a result, defence investment may influence not only national security but also a country's wider industrial competitiveness.

However, Suzuki cautioned against viewing defence spending exclusively as a means of deterring an adversary.

He explained that deterrence depends on how an opposing country evaluates the potential consequences of military action. In Japan's case, he argued that cooperation with the US is central to discouraging potential Chinese military action around Japan, Taiwan and nearby areas.

He also observed that the US approach to its alliances has been changing, with Washington increasingly expecting European countries to take greater responsibility for managing the threat from Russia. Nevertheless, Suzuki said China remains a distinct strategic concern for the US.

Japan's Defence Strategy Is About Preventing Defeat

Suzuki said Japan's increasing defence expenditure should not be understood as an attempt to defeat China in a direct military confrontation.

Instead, he described Japan's objective as strengthening its ability to withstand a crisis and prevent an adversary from achieving its goals.

He warned that deterrence can fail and that military preparedness must account for a wide range of possible scenarios. Japan cannot assume that it would be able to defeat China in a prolonged conflict, he argued, making resilience and preparedness particularly important.

Reflecting on Japan's wartime history, Suzuki cautioned against overestimating national capabilities. He referred to Japan's disastrous experience in the Second World War as a reminder of the consequences of entering a conflict without accurately assessing the risks.

For Suzuki, acknowledging uncertainty and preparing for different outcomes is more responsible than assuming that a country's economic or military strengths will guarantee success.

India Has Potential but Needs Better Infrastructure

Assessing India's ambition to become a major manufacturing centre and an indispensable supplier of goods, Suzuki said he did not believe the country was overestimating its potential. Instead, he described India as punching above its weight.

However, he identified infrastructure gaps as a significant obstacle to India's industrial ambitions. Reliable electricity, improved roads and efficient transportation systems are essential for businesses seeking to establish production facilities and participate in international supply chains.

Suzuki also pointed to insufficient investment in infrastructure, including high-speed rail, as an area where further development could create opportunities for industry.

Another challenge is red tape, which he said can hinder competitiveness and make it harder for businesses to operate efficiently.

Addressing these issues could help India attract investment, improve manufacturing capacity and strengthen its role in global production networks.

Diversification Is the Way Forward for Middle Powers

Suzuki said middle powers can reduce their exposure to pressure from the US and China by investing in research and development, building more resilient supply chains and expanding their access to different markets.

However, he cautioned that completely eliminating dependence on the two largest economic powers is unrealistic. Both countries retain considerable influence through their manufacturing capabilities, technology and consumer markets.

The practical objective, he argued, should be to develop sufficient alternatives to reduce vulnerability when either country uses economic leverage.

Achieving this requires political will, sustained investment and a willingness to resist external pressure when national interests are at stake.

Conclusion

Suzuki's assessment highlights the growing challenge facing governments as trade, industrial policy and national security become increasingly interconnected. While the US continues to use tariffs and investment pressure to encourage domestic manufacturing, the cost of production and availability of workers remain important considerations for foreign investors.

For Japan, South Korea, the EU and India, the priority is not necessarily to abandon global trade relationships but to manage strategic dependence more effectively. Stronger infrastructure, technological investment, diversified suppliers and realistic assessments of national capabilities could help countries navigate an increasingly uncertain economic environment.