US-China Trade Friction Will Hurt Japan

The trade dispute between the United States and China has entered a new phase. The world's largest and 2nd largest economies have slapped 25-percent tariffs on each other's imports, fueling fears about the stability of the global economy.

The administration of US President Donald Trump is also considering higher tariffs on automobiles from Japan and Europe. The effect on Japan would be huge.

Fallout on Japan's economy

Concern is now rising about the potential effects on the Japanese economy. Japanese products are components in many Chinese goods bound for the US. Figures from Japan's Finance Ministry show exports of large amounts of electronic components, such as semi-conductors, and plastics to China.

A report by a private think-tank says shipments to China of equipment for manufacturing IC chips and semi-conductors could decline. It says tariffs on China by the Trump administration worth about 50-billion dollars would be tantamount to slapping about 300 million dollars in tariffs on Japanese products. The report says this will cause a 0.01 percent drop in Japan's GDP.

Auto industry the next target

The Trump administration has already suggested the possibility of a 20 percent tariff on cars and auto parts from Japan, Europe and other countries.

Trump said his government will complete a probe into the matter by end of July.

Analysts say such a tariff would inflict severe damage, not only on the auto industry, but on the entire global economy. Japan's government and the EU are protesting the plan.

The Japanese government issued a statement on June 29th saying such a move could have a devastating effect on the United States, as well as the global economy. It asked the US government to abandon the plan.

On July 2nd, the EU issued a report warning the US tariffs would trigger countermeasures from its trading partners. It said about 294 billion euros worth of US goods would be affected.

Japan pushes free trade

Just how likely is it that the Trump administration will impose such high tariffs on car imports? We asked several people in government. Most couldn't hide their bewilderment and said they simply couldn't tell.

But they all agreed on one thing, that this would inflict more damage on the Japanese economy than any other the US government imposed in the past.

Should these tariffs become a reality, the Japanese government is planning countermeasures in line with World Trade Organization rules. It remains to be seen how effective such measures can be against rising protectionism under Trump.

Trade ministers from Asia-Pacific countries met in Tokyo on July 1st to discuss the Regional Comprehensive Economic Partnership, a potential free trade pact.

RCEP negotiations began 5 years ago and made little progress. But at the close of the latest talks, Japan's Trade Minister Hiroshige Seko said the members aimed to reach agreement by the end of this year.

Japanese officials want to use their expertise gained in negotiations for the Trans-Pacific free trade pact and the Economic Partnership Agreement between Japan and Europe. They're hoping an RCEP deal would help ease the protectionist trend.

The last thing Japan wants to see is an escalation in protectionism. They face the difficult challenge of continuing communication with the Trump administration, while playing a pivotal role in promoting free trade.