Japanese Companies Shift Manufacturing Operations Out of China Due to Sino-US Trade War

A pedestrian walks past an electronic board showing the share prices of the Tokyo Stock Exchange (L) and the foreign exchange rate between the yen and the US dollar (R) in Tokyo on Aug. 13, 2018. (Kazuhiro Nogi/AFP/Getty Images)

Four Japanese companies—Asahi Kasei, Komatsu, Iris Ohyama, and Mitsubishi Electric—are moving production out of China, in response to the ongoing trade war between the United States and China, according to two recent articles by Japanese media Nikkei.

Asahi Kasei, a chemical company, shifted production of a plastic material that is shipped to the United States from China, to a plant in Japan. The decision to bring production home was made after the plastic, which is used in auto parts, was among products the Trump administration said would be subject to tariffs.

Komatsu, a manufacturer of construction, mining, and military equipment, said its current China-based production of certain parts for hydraulic excavators will be relocated to facilities in the United States, Japan, and Mexico.

Iris Ohyama, a consumer plastic maker, plans to move its production of air purifiers, electric fans, and other appliances bound for the U.S. market to a new plant in South Korea, which is scheduled to be completed next year. The production shift is a precautionary move, since those products haven’t been hit with U.S. tariffs yet, the company said.

Mitsubishi Electric, which makes electrical equipment, said its U.S.-bound electrical-discharge and laser-processing machines are on the United States’ tariff list. As a result, these products, which were originally produced in Dalian, a port city in northern China’s Liaoning Province, will be manufactured in Nagoya, Japan, instead. The Dalian site will continue to make products that are destined for the Chinese market.

On Aug. 23, the United States and China slapped 25 percent tariffs on $16 billion worth of each other’s goods, bringing the tariffs to a total combined value of $100 billion of products since July.

A Trend

China and the United States are Japan’s two biggest trading partners. Japanese companies exported a combined $300 billion worth of products to China and the United States in 2017, according to an Aug. 24 article by the Japan Times newspaper, citing data from the Japan Foreign Trade Council.

In a monthly report on the Japanese economy issued Aug. 29, the government downgraded its assessment of exports to stalling from being in recovery, citing concerns about the impact of Sino–U.S. trade war on the Japanese economy, according to Reuters. It’s the first time in three years that the export assessment has regressed.

There is a risk that Japan’s exports will suffer if trade friction between the United States and China continues, a Japanese government official told reporters.

Some Japanese companies have turned to Vietnam for business, instead. According to the business newspaper Vietnam Investment Review (VIR), a recent survey of 4,630 Japanese firms conducted by the Japan External Trade Organization (JETRO), a government organization, showed that 70 percent of Japanese firms had an interest in expanding their business in Vietnam, compared to 48 percent for China.

Also according to VIR, 72 Japanese companies visited the Quang Ninh government, seeking investment and business opportunities last week. Quang Ninh is a coastal province in northeastern Vietnam.

“Japanese firms want to expand their investment markets out of China to shun risks caused by the nation’s rising production costs and by the U.S.–China trade war, which is making it hard for Japanese firms to export their products to the U.S. from China,” said Nguyen Duc Tiep, a representative of the Quang Ninh Investment Promotion Agency, a government agency, in an interview with VIR.