Worst fears avoided as U.S. slaps new tariffs on China, sparing Japanese businesses — for now

by Cory Baird

Staff Writer

U.S. President Donald Trump has ordered additional 10 percent in tariffs on $200 billion in Chinese imports, further escalating the trade dispute between the world’s two largest economies while relieving the market’s worst fear that the U.S. administration would follow through with more punitive measures.

The U.S. originally threatened to impose tariffs at a 25 percent rate but will now only do so if trade negotiations between the two countries fail to make progress, according to a statement posted to the website of the U.S. Trade Representative on Monday evening U.S. time. The 10 percent tariffs are set to take effect Sept. 24.

“The increase in the possible rate of the additional duty is intended to provide the administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens,” read the statement.

China swiftly responded to the salvo, saying Tuesday it will take “countermeasures,” while American business groups warned of a “downward spiral” in a trade battle with fewer options for de-escalation between the two sides.

Although the situation has so far fallen short of the worst-case scenario, Japanese businesses are once again left to grapple with the deleterious side effects that tariffs forebode — companies that are less willing to invest in an uncertain business environment.

“Because the tariffs were 10 percent rather than 25 percent there is not an overwhelming sense of crisis,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.

Yet in the longer term, Takeda believes that the threat of tariffs may weigh on economic growth as investment is cut back under increased uncertainty. “I think we could see the effects (of the tariffs) from the beginning of next year,” he said.

Since kicking off what has become a global trade dispute with $48 billion in steel and aluminum tariffs introduced on a wide swath of nations in June, the U.S. has turned its focus on China, introducing a total of $50 billion in tariffs over the summer.

And with each round of tariffs it becomes increasingly complicated for Japanese businesses to know exactly how the policies will impact their bottom line.

Fukunari Kimura, an economics professor at Keio University, said that with increasingly complicated production processes, it is unclear how the negative effects of the tariffs might ripple through domestic firms’ supply chains.

“Even a large assembler such as Toyota does not know the whole picture of upstream supply chains,” said Kimura, who also added that trade tensions are likely to slow down investment among Japanese companies.

In the short term, not all are concerned by the latest U.S. trade move.

Daiju Aoki, chief Japan economist at UBS Securities Japan, said that for the time being global economic strength is helping push the Japanese economy forward despite the ongoing trade dispute.

“For global and Japanese markets, even though U.S. and China trade relations are worsening, the global economic conditions are still solid,” Aoki said. “It is not enough to cause a recession or financial crisis.”

While Japan has thus far avoided a direct confrontation with the U.S., the country is still under threat from proposed auto tariffs that would do greater damage to the economy, according to Marcel Thieliant, a senior Japan economist with Capital Economics.

“The much bigger threat (to Japan) is the pending review on the auto tariffs,” he said.

Even if Japanese companies manage to escape the various trade disputes unscathed, they will have to be more nimble in a rapidly shifting global trade environment, said Hajime Takata, chief economist and managing executive officer at Mizuho Research Institute Ltd.