US-China trade war impact on Japan limited but risks high if United States imposes new tariffs, analysts say

The US-China trade war has so far only had a limited impact on Japan’s lukewarm economic growth, but the affect is likely to grow if Washington imposes further sanctions on Chinese imports, Japanese analysts said.

The downward pressure on Japanese growth over the last year, in fact, has been less to do with the trade war and more to do with declining global demand for smartphones, which has hit Japanese exports. The lingering effects of China’s deleveraging campaign to reduce debt and risky lending that has cooled Chinese investment in new equipment, much of which is manufactured in Japan, has also played a part.

The stakes are high not only for Japan, but for global trade as Japan is the second largest economy in Asia and the third largest in the world behind the US and China.

“The US-China trade dispute so far has had hardly any impact on Japan,” said Mitsubishi UFJ Research and Consulting economist Shinichiro Kobayashi. “If anything, Chinese companies have been cautious about capital investment in anticipation of an escalating trade dispute, which has lowered demand for Japanese machines.”

But the actual impact could remain relatively modest if Beijing, as expected, enacts additional fiscal and monetary stimulus to ensure domestic growth does not slow significantly, Japanese analysts added.

“Looking ahead, there will be a greater impact if the US imposes higher tariffs on exports from China as planned because the trade sanctions will target smartphones, laptop computers and apparel,” for which Japanese manufacturers supply crucial electronic parts and fabrication devices, Kobayashi added. “But stock market investors are largely optimistic that the US will delay [the tariffs] or make exceptions to avoid hurting its own companies like Apple, Dell, Hewlett-Packard and Gap, all of which produce in China.”