Amid the intensification of the trade war between the U.S. and China, Japanese companies that have production bases in China are beginning to relocate these to Japan or elsewhere to avoid high tariffs imposed on exports to the U.S. However, as production in Japan where labor costs are higher will lead to higher manufacturing costs, those companies have to make a difficult decision while examining the impact of cost increases caused by the high tariffs.

Komatsu, Ltd. (Tokyo) has partially relocated the production of welded components, used for hydraulic excavators manufactured in the U.S., to plants in Japan, Mexico and the U.S. The company has expanded its supply chain globally in preparation for currency fluctuations and can change its production system according to a given situation. This enabled Komatsu to be able to  respond quickly to the current situation. The relocation will cost the company an additional 4 billion yen annually, Komatsu said.

Mitsubishi Electric Corporation (Tokyo) has manufactured in China its electric discharge method machine (EDM) and laser processing machine, which are used for metal working, but the company relocated production to its Nagoya Works, which manufactures the same products. The company’s manufacturing base in China has produced about 70% of the EDM and about 30% of laser processing machines exported to the U.S., but Mitsubishi decided to fold the Chinese operation into the Nagoya plant. “We decided to have the Chinese plant manufacture products for China to alleviate the impact of the high U.S.tariffs,” said a Mitsubishi public relations spokesperson. “Hopefully, the business environment will soon become stable.”

The Chinese plant of Daikin Industries, Ltd. (Osaka City) manufactures fluorocarbon polymer, which is subject to the imposition of the second tranche of additional U.S tariffs. The product is exported to the U.S. and used for communication cables. The company’s public relations department said: “We are examining the impact of the additional tariffs to determine whether the company can add the increased cost to the selling price or the company can somehow absorb the increased cost by economizing. We are discussing response measures including the relocation of the manufacture of fluorocarbon polymer to plants in other countries.”

At the end of last year, the Japan External Trade Organization (JETRO) compiled the results of a survey of about 800 Japanese companies with manufacturing bases in China. The survey showed exports to the U.S. accounted for about two percent of the total sales of those companies’ manufacturing bases in China. However, JETRO’s China and North Asia Division director Dai Hakozaki said: “There are Japanese companies that export parts to China for assembly in products by Chinese companies, so the indirect impact is significant.”