How will Japan be impacted by the US/China trade war in 2021?

Huangpu Qu, China - Samuel Barbosa da Cunha

How will Japan be impacted by the US/China trade war in 2021?

In 2020, China was responsible for consuming in excess of 20% of all exports from Japan for the first time in years. This is largely because of China’s ability to withstand the negative impact of COVID-19 on its economy in comparison with Japan’s other major trading partners.

This means that China consumed $146 billion worth of goods from Japan last year, according to data issued by the Japanese Ministry of Finance. For the two previous years, the US held the position of the leading destination for Japanese goods.

How will the US/China trade war play out under a new US President?

However, there is some backlash among Japanese businesses. They are warning of the dangers of relying heavily on China as the leading export market, due to the US/China trade war.

Since the late 2000s, the US and China have alternated as the lead trade partner for Japan. Exports from Japan fell by just over 11% in 2020 due to a hugely decreased demand from the US and Europe because of the pandemic. China, on the other hand, increased demand by 2.7%.

A notable growth area can be seen with passenger vehicles made in Japan, which grew by 15.9%. Sales to China from Toyota Motor went up about 10% in 2020 to 1.79 million units, largely driven by the Lexus brand.

Similarly, Musashi Seimitsu Industry, which makes auto parts, increased its exports to China by more than 10% in 2020. This increase is partly down to an increased demand in China for electric vehicles.

Chinese demand for Japanese imports is growing across multiple sectors

Chinese demand for Japanese products isn’t restricted to the automotive industry, however. Exports of paper from Japan to China soared by 26.6%. Cardboard material increased hugely by 93% to reach 880,000 tons from Japan to China last year, according to a report from the Japan Paper Association.

This sharp increase is down to tightened restrictions by the Chinese government, leading to importers needing to bring more in from other countries. These Japanese paper exports to China will continue to increase.

Other products in demand by China include steel. China’s economic stimulus strategy hinges on public work investments. And, as Tokyo Steel Manufacturing deals with a fall in demand in Japan, it began exporting to China in 2020 for the first time in ten years.

China could overtake the US as the world’s biggest economy

During the previous decade, from 2010 to 2019, Japanese exports to China remained relatively steady between 17% and 19%. In the short-term, however, we can expect them to continue rising past 2020’s 20%, as Japan responds to China’s success in dealing with the pandemic and consequent economic strength.

So, how does this year’s change in US presidency affect China – US trade ties, given the turbulence of the last few years? This will obviously impact Japan, particularly as China becomes more central to its exports. Some economists have welcomed President Biden’s administration, while others maintain that the US remains a significant threat to China economically.

Former president Donald Trump launched a damaging trade war in 2018. And as President Biden was inaugurated on 20 January 2021, many hope that this will improve relations.

Prominent Chinese economist Yu Yongding says that the trade war so far has seen no winner. He points out that while China suffered heavily, the US paid an equally high price.

Speculation over President Biden’s stance on trade with China

China’s trade surplus with the United States increased from $295.77 billion to $316.91 billion from 2018 to 2020. This is despite China’s commitments to purchasing laid out in the Phase One trade deal and in the face of heavy tariffs imposed by Donald Trump on goods from China.

In 2017, there was a $275.8 billion surplus, which means that last year’s figure represents a 14.9% increase. Trump took office in January 2017 and immediately claimed that trade practices in China cost American people jobs.

However, China remains a long way behind its trade commitment to purchase more US goods. According to the Peterson Institute for International Economics, China’s buying of US products only reached about 58% of its commitment. This is partly because of the COVID-19 pandemic, which gives weight to China’s demands that both countries renegotiate the trade agreement. They want to include a clause called force majeure, which effectively frees either side from the commitment if there are extraordinary events out of each country’s control.

US economic experts want President Biden to change the policy towards China. This should, they say, include rolling back Section 301 tariffs, which are actually paid by US consumers and importers and not Chinese export businesses anyway.

Caution from China over the US could be positive for Japan

President Biden is expected to adopt a friendlier tone towards China in general However, he has also intimated that the US trade approach won’t be vastly different to his predecessors, in the short term at least. This has led to some Chinese economists being outwardly cautious towards the new US president.

However, China’s swift economic recovery from COVID-19 is pushing it ahead of the US economically. It’s absolutely possible that China will overtake the US as the biggest global economy, which will only increase tension. A sharp take by Chen Wenling, the Chief Economist at the China Centre for International Economic Exchange, which is backed by the Government, can be seen with her views on the negative energy of US politicians.

She says that although “some absurd politicians have withdrawn from the stage of history, the ghosts of extremely ignorant populism and anti-intellectualism will keep diffusing over these countries for a long time, continuing to impact the world economy and China-US relations.”