Japanese Shifting Production Away From China

Japanese companies are shifting production away from China to defend themselves against higher US tariffs targeting Beijing as the growing trade war begins to have an impact on global supply chains.

Many overseas units for these companies make products and components exported to a third country, like the US. But Washington enacted a 25% tariff on $16 billion in Chinese goods Thursday, drawing a reciprocal response from Beijing. The US also is considering a blanket duty on cars and autoparts, forcing companies to rethink their supply chains, Nikkei reported.

Asahi Kasei relocated production of US-bound plastic material from China to a plant in Japan. The material, used in car gears and other autoparts, was among the products targeted by Thursday’s tariffs.

Asahi made the switch in about a month after the US proposed this list of new tariffs, as the company benefited from producing the material in Japan and China as well as having approval in advance from clients to use either country if there were problems.

Japanese companies generate $218 billion in revenue from overseas production sold outside of Japan or that country of origin. China accounts for $26 billion of the total, according to a survey by Japan’s Ministry of Economy, Trade and Industry.

Komatsu will tap facilities in the US, Japan and Mexico to produce certain parts for hydraulic excavators assembled in America. These parts currently are made in China.

The company’s flexible production structure lets it move parts between markets to accommodate economic shifts. The planned change will cost Komatsu an extra 4 billion yen ($36 million) a year.

Some companies are seeking exceptions to the tariffs, arguing they have no alternative. Japan Steel Works is applying for an exemption from duties on steel it uses to make bearings in the US. But the screening process is understaffed and faces delays.

Shifting production away from China also entails political risks in that market. “If we announce without first going through the appropriate channels that we expect exports to fall, we can offend local government officials,” said a chief executive of a Japanese company unit there. This manufacturer also has shifted some output to Japan, but has not made the details public.