The intensification of U.S.-China trade fiction is forcing Japanese companies to rethink the supply chains for parts and other materials that they have built in China and Southeast Asia. There is also concern about the need for additional capital investment and other financial burdens if they move their production plants out of China.
Calculators manufactured by Casio Computer Co. in China are affected by the U.S.’s third round of punitive tariffs. A company official says: “We have begun to think about moving production out of China, increasing the prices of our products, and other measures.”
Fast Retailing, the company that owns Uniqlo, currently exports garments produced in China to the U.S. Since additional tariffs are expected to be slapped on textile products from China, this company is considering switching to exporting from Vietnam, Indonesia, and other countries.
Computer equipment manufactured by a Chinese company using memories from semiconductor giant Toshiba Memory are subject to the third round of punitive tariffs imposed by the U.S. Demand for memories may diminish if this company reduces production.
Daiwa Research Institute estimates that even if the U.S. and China fail to reach agreement in their talks and punitive tariffs in the third round are raised from 10% to 25%, this would only slash Japan’s real GDP by 0.02%.
However, many parts for electronic equipment exported from China to the U.S. and machine tools used in Chinese factories are made in Japan. Japanese companies have also built complex supply chains, mostly in Southeast Asia, to ensure a stable supply to their clients. Many parts and materials are sent to China from nearby countries, so the trade war may deal a blow to the exports of Japanese companies.
Mizuho Research Institute senior economist Takayuki Miyajima points out: “The expansion of punitive tariffs will have an extensive impact on Japan and the Southeast Asian countries that supply parts to China. Economic stagnation in China may prompt companies supplying parts and other products to China to put off investment.”