- Analysts say these firms are likely to be holding their collective breath as they look for any signs of improvement.
- China is a critical market for Japanese companies.
- Some Japanese manufacturers are already considering shifting some Chinese operations
Tokyo – United States President Donald Trump will visit Japan this weekend, a trip marked by pomp and ceremony. He’s due to attend a sumo match, play golf with Prime Minister Shinzo Abe and meet newly-crowned Emperor Naruhito.
But there’s also likely to be more than a little anxiety around his visit, at least on the part of some of Japan’s top companies.
Analysts say these firms are likely to be holding their collective breath as they look for any signs of improvement in an already tense economic relationship, or prepare for a deterioration in it.
Top Japanese manufacturers and exporters are growing increasingly concerned that the ongoing trade war between China and the US – which has escalated over the past two weeks – could lead to an economic slowdown in China, impacting the global economy and their businesses.
For instance, the Bank of Japan’s closely watched quarterly “tankan” manufacturer’s sentiment gauge fell to a two-year low in March as companies felt the pinch from falling demand for electronic parts, cars and machinery goods.
China is a critical market for Japanese companies. Out of the total 81.5 trillion yen ($740bn) in Japanese exports in 2018, 15.9 trillion yen ($143.9bn) went to China and 15.5 trillion yen ($140.3bn) went to the US. Japan’s third largest export destination was South Korea.
Japanese companies face two main risks.
Manufacturers with operations in China could see disruptions to their supply chains because of restrictions by the US government that limit their ability to move products from China to the US.
“The degree of the impact of the trade war varies by company. Considering the trade war may continue for the foreseeable future, more of Japanese manufacturing companies are starting to reconsider their supply chain,” said Ryoji Watanabe, a senior analyst at the Washington, DC office of Sumitomo Corporation, a global trading company.
The increase of tariffs for the third tranche ($200 billion worth of Chinese goods) from 10 per cent to 25 per cent would accelerate the shift.”
“Some others are considering shifting their production to Japan, Mexico or the United States.”
Last week, the US Commerce Department blocked Huawei from buying US components, saying it was involved in activities that are “contrary to national security.” Other Chinese companies, such as Hikvision , may join Huawei on the Commerce Department’s so-called “Entity List,” according to media reports.
Analysts say Japanese firms are scrambling to work out how these restrictions may affect them.