U.S. Trade Representative Robert Lighthizer on Tuesday proposed an additional $200 billion in tariffs on Chinese goods, rattling financial markets and setting off fears across the globe that the worst may be yet to come in the ongoing trade dispute between the world’s two largest economies.
The additional tariffs, outlined in a 205-page document, would impose 10 percent duties on a wide swath of Chinese goods, ranging from seafood products to “antiques of an age exceeding one hundred years.” The tariff list hasn’t been finalized and will be examined further during a public comment period, running through August.
Chief Cabinet Secretary Yoshihide Suga, speaking at a news conference Wednesday, noted the government’s concern over the latest trade dispute, stating that “Japan and other countries will focus on the impact of the situation between the U.S. and China.” Suga, however, stopped short of completely condemning the latest trade move.
Even as Tokyo finds itself directly removed from the crosshairs of U.S. President Donald Trump’s latest protectionist measures, domestic firms, and by extension the broader economy, are unlikely to escape unscathed while Japan’s two largest trading partners wage the equivalent of economic war.
“Since China and the U.S. are 40 percent of world GDP, if trade disputes cause growth in both of these countries to fall, then we could see a lot of damage to Japanese exporters,” said Yoko Takeda, chief economist at Mitsubishi Research Institute.
The U.S. and China are the top trade destinations for Japanese companies, which sent around ¥30 trillion ($300 billion) in exports to the two countries in 2017, according to the Japan Foreign Trade Council.
Takeda outlined two ways the Japanese economy could be indirectly affected by the trade war: financial market instability and worsening business sentiments that lead companies to cut back on spending.
The effects of trade disputes may already have firms spooked, as the Bank of Japan’s July tankan business sentiment survey showed a drop in confidence among large manufacturers, including automakers and electronics companies.
Still, Takeda believes the effects of a trade dispute will most likely remain muted in the short term because of a healthy global economy, but take a bite out of long-term growth.
“I think we will continue to see strong growth through 2018, but there is a sense of nervousness in the world economy,” Takeda said. “If the trade protectionism continues I think we could see a slowdown in growth in 2019.”
Even before the latest U.S. move, policymakers at the BOJ were beginning to grow wary over U.S-China trade frictions.
Minutes released from the April monetary policy committee meeting showed that members of the nine-person policy board repeatedly raised the issue of U.S.-China trade policy, warning that a deterioration in trade could dislodge financial markets and investor sentiment in both Japan and abroad.
Hajime Takata, chief economist and managing executive officer at Mizuho Research Institute Ltd., estimates that in the case of severe trade slowdowns — defined as a 20 percent drop in U.S.-China trade — Japanese economic growth could slow by 0.6 percent, a significant part of the overall growth which expanded by 1.7 percent in 2017.
Takata, however, noted that U.S. and China trade has yet to slow.
In the meantime Takata said that policymakers should be wary of a sharp appreciation of the yen if the tariffs are implemented.
“If you look at the past 70 years, every time there is an intensification of trade problems the yen always strengthens,” Takata said, adding that the result of a sharp appreciation would have significant effects on the economy as businesses see lower profits.