Japan's Economy Faces Risk from US-China Trade Tensions
Tokyo, Japan - Japan's economy could suffer if the United States imposes new tariffs on China, reigniting the US-China trade war, according to the government's chief economist.
Tomoko Hayashi, chief economist at the Cabinet Office, stated in an interview with Bloomberg that "if a US-China trade war leads to higher tariffs, it's likely to negatively affect Japan's economy, based on past experience."
During President Trump's first term, Hayashi was among the primary government analysts assessing the economic impact of his policies. She noted that Japanese businesses may be better equipped to handle the potential fallout this time due to supply chain diversification and greater familiarity with the president's tactics.
Hayashi's team cited a 7.1% decrease in Japan's exports between the second quarter of 2018 and the first quarter of 2020 as evidence of the trade war's adverse effects. Much of the impact was indirect, affecting exported components used in products assembled in China and shipped to the US.
In 2019, Japan's exports to China declined by 7.6%, the steepest drop since 2012 when diplomatic tensions escalated over disputed islands in the East China Sea.
Hayashi believes Japan could face similar consequences from the potential US tariffs on China, but companies may be more resilient to disruptions. "Having learned from past experience, some Japanese firms have already put countermeasures in place, such as adjusting supply chains and stockpiling inventory," she said.
Additionally, Hayashi emphasized that China has also made preparations, diversifying export markets and establishing factories in other Asian countries to reduce reliance on the US.
She highlighted Trump's proposed tax cuts, immigration reforms, and energy policies as potential factors influencing the overall US economy. While some initiatives, such as higher tariffs, could have negative global repercussions, others could provide benefits.
Hayashi stated, "Tax cuts and deregulation typically boost the US economy, which accounts for 26% of global gross domestic product." "If US growth increases, Japan's economy will naturally benefit."
Regarding domestic monetary policy, Hayashi expressed confidence in the Bank of Japan's decision-making process, noting its recent interest rate hike. She sees progress towards eliminating deflation, a long-term government goal, but emphasized the importance of further confirmation and ongoing wage negotiations to sustain a virtuous cycle of prices, wages, and consumption.