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U.S. President Donald Trump’s tariff policy could not only disrupt the global economy, but also lead to the collapse of the free trade system and the world order. Japanese companies are bracing themselves for the measures, which have no clear end in sight.
Leaders from Japan’s major automobile manufacturers, such as Toyota Motor Corp. and Honda Motor Co., met with Economy, Trade and Industry Minister Yoji Muto at the ministry on Tuesday night. The Trump administration on April 3 imposed an additional 25% tariff on automobiles, an industry which accounts for 30% of Japan’s exports to the United States.
“The tariffs threaten our profits,” Japan Auto Parts Industries Association Chairman Takashi Kayamoto said. “[Small and medium-sized companies] are saying it is a matter of life or death.”
Muto said, “The impact on the supply chain is feared to be affected, too,” and promised the government would provide support,
Nissan Motor Co. was the first to react to Trump’s tariff policy.
It reversed its plan to reduce production in the United States, where its sales have been sluggish. Instead, it has begun to consider reducing production at its plant in Fukuoka Prefecture, which produces the Rogue SUV, its mainstay model in the U.S. market.
A parts company owner in the prefecture lamented: “Once production is reduced, it won’t return domestically. We’ll have no choice but to cut staff.”
If the trend of shifting production away from Japan spreads in one business field, which many other companies rely on, the hollowing out of the whole industry will be unavoidable.
Toyota, meanwhile, plans to maintain a production system capable of producing 3 million vehicles in Japan to protect domestic employment.
U.S. tariffs will be a burden on the management of exporting companies. It is a possible that companies will be forced to compete in a survival of the fittest manner based on their ability to absorb the extra costs.
Local industry affected
The tariff policy is also throwing local businesses into disarray.
Imai Daruma Naya in Takasaki, Gunma Prefecture, has been expanding its exports of the city’s specialty daruma dolls and shipped around 2,000 of them to the United States last year.
“I don’t think we can expect much this year,” President Hirohisa Imai, 54, said.
Saiei Orimono Co. in Kawamata, Fukushima Prefecture, has exported silk textiles for over half a century. It is receiving cancelations of orders from its U.S. clients, whose purchases account for around 30% of its sales.
“We will have to give up on finding replacements for retirees and instead consider reducing staff if the impact continues,” President Eita Saito, 44, said.
Tariffs also high overseas
The U.S. tariff policy has forced companies to reconsider their business models.
In the past, Japanese manufacturers increased overseas production due to the strong yen. Many companies have production bases in low-labor-cost Southeast Asia and export from there to the United States and elsewhere. The tariff policy will also make this less profitable.
Ricoh Co.’s multifunction printers produced in Thailand for the U.S. market will be subject to an additional 36% tariff, which is higher than in Japan.
“The policy is harsher than we expected,” a Ricoh executive said.
Konica Minolta, Inc., which exports multifunction printers from Malaysia to the United States, has set up a dedicated team to help it cope with the situation.
Analysts have indicated that shifting production bases will be necessary if the passing-on of costs causes a decline in sales volumes.
Many companies seem to be reducing costs to endure the situation for the time being. However, the Japan Fair Trade Commission has stepped up its monitoring of subcontractor bullying in an effort to make it more difficult for makers to push costs onto their subcontractors.
There is a limit to what cutting costs alone can do.
“The industrial infrastructure could collapse from the ground up,” Japan Automobile Manufacturers Association, Inc. Chairman Masanori Katayama, who also is chairman of Isuzu Motors Ltd., said at a meeting with Muto. “We will actively work on employment and distribution to protect the livelihoods of our colleagues.”
