TOKYO (THE YOMIURI SHIMBUN/ASIA NEWS NETWORK) - A growing number of Japanese companies are relocating their production bases from China to other countries over fears of reduced price competitiveness caused by the expected hike in US tariffs on Chinese goods.
The United States has imposed incrementally higher punitive tariffs on imports from China. Should the tariffs expand to cover most Chinese-manufactured products, many goods produced by Japanese firms in China will become more costly and less competitive.
The escalating US-China spat, which began in summer 2018, is unlikely to be resolved soon following the implementation of the third round of Chinese tariffs on US goods on Saturday (June 1).
Prior to the new Chinese tariffs, Washington announced a draft plan on May 13 through which it would levy duties of up to 25 per cent on an additional US$300 billion (S$412 billion) in Chinese imports as part of its fourth round of tariffs.
Forty per cent of items targeted by the upcoming tariffs are consumer goods, with possible rises in the prices of imports from China leading to reduced sales in the US. If the proposed US tariff take effect, there are concerns they will have an impact of unprecedented scale.
In addition to mobile phones and notebook computers, the targeted items include game consoles, wristwatches and clothing mass-produced by Japanese companies in China.
To address the situation, an increasing number of companies have accelerated moves to transfer their production bases to South-east Asia and elsewhere.
Casio Computer has started work on a plan to transfer production of watches including its flagship G-Shock wristwatch, and musical instruments to Thailand and Japan from China.
Casio estimates that the wristwatch business is expected to take a hit of 700 million yen (S$9 million) due to the tariffs, and expects to halve that prospective figure by shifting its manufacturing bases.
Ricoh, for its part, has decided to transfer production of its multifunction printers with copy machine, scanner and fax capabilities for the US market from China to Thailand as early as this summer.
Uniqlo operator Fast Retailing launched discussions on increasing its reliance on South and South-east Asian nations such as Bangladesh and Vietnam for the production of clothing, which is currently exported from China to about 50 US outlets.
Panasonic has relocated part of the production of its car stereos and other automobile equipment from China to factories in Thailand and Malaysia.
However, some companies are hesitant to give up their Chinese manufacturing bases due to concerns about the cost of shifting bases and rebuilding their supply networks.
"Exit-from-China" policies are not easy for Japanese companies that rely on commissioned production.
About 40 per cent of Nintendo Switch game consoles produced in China are sold in North and South America, with the US accounting for most such sales.
The import price of game consoles into the US is set to rise 25 per cent with the fourth round of tariffs.
However, Nintendo cannot unilaterally move its production base because the consoles are manufactured by a Taiwan-based company it has commissioned.
Kyocera is also studying partially transferring production of its multifunction printers to Vietnam, but only a limited number of models can be made in the country.
"It's not easy to transfer production," a source close to Kyocera said.
Demand for parts made by Japanese firms used in Chinese products will also fall as a result of the prolonged US-China friction.
According to an estimate by Daiwa Institute of Research economist Shunsuke Kobayashi, Japanese exports will shrink by 1.3 trillion yen if the fourth round of US tariffs takes effect.