Trump tariffs may push down Japan's economic growth by up to about 2%
Ideas:
The attempt of this analysis and commentary is not to just criticize what is going on with the US situation but to try to understand what and how its going to affect Japan and of course other countries globally. There are already hundreds if not thousands of hours of TV programs and articles written about what is happening so the attempt will be to give a different angle to what is already known.
The world trade order or trading order has taken about 50+ years to develop and its a very delicate system of supply chains and partnerships developed again over many years of countries working together to eventually find the common good for all.
And yes, unfortunately some countries have more market power than other countries which is why the World Trade Organization was set up to try and to minimize those discrepancies in the world trade system.
It's already known back in the late 1920's and early 1930's how the system was almost derailed with attempts buy one country to become too isolationist and or use tariffs for its own good at the detriment of all other countries.
So here we go again, with the US administration attempting almost the same thing with an attempt to re-configure the world trading system, and again its a very delicate system that cant be easily changed without disrupting a lot of financial systems and without harming people's lives.
Unfortunately, Japan is always a quarter or two away from a recession and that has been its trademark fora very long time.
The Japanese economy has been built on exports and maybe again unfortunately its portfolio of exports is not large enough to handle a downturn. For example South Korea might be in the same situation and its export portfolio too is not as diverse as it should be as it too could be in for a projected recession. Both countries need to diversify their export portfolio such Japan needs to not rely on only Japanese cars and South Korea needs to not just rely on semi conductors to grow their respective economies.
The 0.7 percent over a year might be a good estimate but again, it might not even take that much for the Japanese economy to bottom out and again, Japan might be too dependent on Japanese cars as its main export product.
And again, using South Korea as an example, for many years its been known that South Korea had a very small export portfolio such as semi conductors and or course cars and for many years some have told South Korea to diversify it exports in case of a world recession which could happen soon. And now Japan too needs to heed to challenge to diversify its exports before its too late if not already.
Both Japan and South Korea maybe have relied on the US for its export bread and butter and needs to diversify as much as possible to other markets if that's possible these days.
Yes, again, an estimate of 1.8 percent is probably correct but as always there are a lot of estimates about what is going happen to the Japan economy, but no one knows exactly just yet, as its still a little too early to see any affects of the tariffs.
This commentary will attempt to not use T's name here as it doesn't want to turn this commentary into a gripping session about what is happening. But things can quickly change and who knows 100 percent what is going to happen, as it's been seen before that T can change his mind many times before the end of his term.
Some have suggested that the tariffs T has implemented or going to implement are nothing but a negotiation tool to get other countries to reduce their tariffs.
T seems to think all or feel all countries are against the US and its economy and have stolen jobs away from the US. What T doesn't understand is the idea of absolute and comparative advantage that some countries, such as Japan and China can make products much cheaper or much better than the US can. And that has been the way of the trade system for many many years.
So the proposed tariffs by T might not be based on sound economic principles as it might be based on economic revenge or retribution just to satisfy his ego and power.
Again, the world trade order has existed, in its present form since WW11 ended and has been fairly successful for most countries. And yes, there are instances of market power and other weaknesses in the system, but its been the best trade system for most countries for a very long time.
What T has started could potentially be a trade war unless nations and governments can keep their cool and as needed, unfortunately, communicate their concerns to T's government.
Communicating their concerns should not be a seen as sign of weakness or waving the white flag of surrender to T but as any country and many countries do they find ways to get around the situation the best they can.
And yes, it might be true that some countries have high tariffs on US products or products from other countries and maybe a country should look at what they can do with reduced tariffs from other countries.
We live in a global world of thousand of transactions daily of products moving from one country to another and maybe its time to look at how some countries continue to have high tariffs on some products.
To be honest, US cars are not that popular in Japan and maybe they never will be and whatever T tries to do, it's not going to improve the sales of US cars in Japan. T just needs to know and understand that the Japanese, and for the most part South Koreans, just don't need or want US cars.
And, again, Japan need to diversify its export portfolio and not just relay on Japanese cars as its main export product and it especially needs to diversify into other markets, if that is even possible today and maybe they have saturated every market possible.
And here is a very important variable, in that there are many many subcontractors related to the Japanese car industry and US car makers too, and if tariffs are implemented on Japanese parts products they are going to hurt US cars too, which T seems to not understand.
Again, the Japanese administration should try and communicate their concerns to T and again its not a sign of weakness but a sign of practicability that there is always something to gain and always something to give in turn.
There are just too many US consumers who want Japanese cars and to not sell l.3 million cars in the US economy is not only going to hurt Japan but its going to hurt the US even more and there are many Japanese car dealerships in the US, and then there is all of the repair centers in the US and then there is all of the car parts stores in the US that could potentially be hurt by the tariffs.
The global economy is very blurred or unsure of what is going to happen now. and to be fair that seems to be what T likes, and he seems to like chaos and not calmness which the global markets need today.
Global stock markets have responded with a lot of uncertainty and a lot negatives and unfortunately a lot people have lost a lot of money over the past week, and its all T's fault.
Countries need to remain calm and not panic as panic is that last thing the global economy needs at this time.
Business confidence in Japan has never been that great lately and now with the US situation it might not get much better.
Japanese company wage growth is an important step to get out of the stagnation mode that the Japanese economy has been in for a very long time. Its been estimated too that wages in Japan are now some of the lowest among OECD countries.
The tariff situation is/could put a dent in Japan's attempt to end both stagnation and deflation and the country has been under cloud of both problems for many years and again the tariff situation doesn't help the situation.
An increase of 5.28 percent is good for large companies but small and midsize companies need to increase wages too, but many of them don't have the resources needed to match what large companies can do. At the same time some 70 percent of Japanese workers work for small and midsize companies and not the large name-brand companies.
Wage increases usually only happen in April of the new fiscal year, while inflation can increase any week any month of the year, so wages need to be enough to overcome inflation which then Japanese households can begin to feel good about their wage increases and begin to spend in the Japanese economy again.
It's good that Japanese companies increased wages for a second consecutive year, but who is going to pay for these wage increases. Are companies going to pass-on these wage increase through the supply chain until they reach the final retail customer.
But that's what companies do these days and they want to keep a specific profit margin and anything that decreases that profit margin gets pass-on through the supply chain including the final retail customer.
For a long time the BOJ under the former governor was very reluctant to tighten monetary policy as it thought that increasing the key rate would weaken the already weak Japanese economy.
So what is worse, the key rate being increased and or the side effects of the key rate. The Bank of Japan has to determine which might be worse for the Japanese economy. It's like taking medicine for some medical situation as the medicine might be good for a person but there are some side effects that could cause some situations in a patient.
Yes, that is the situation for many companies especially small and midsize companies that have very thin profit margins and can't afford wage increases due the increase of global raw material prices and or course the weak Japanese yen doesn't help too as it increase prices of raw materials.
So there might be a situation in Japan of the haves, the large companies that can increase wages and the have nots, the small and midsize companies that can't afford the same wage increases that the large companies are expected to do.
Yes, the tariff situation potentially is a deal breaker for some or many small and midsize companies who don't have the resources needed to overcome the tariff increases.
In this case, it might be prudent for the Japanese government to consider subsidies to help the small and midsize companies, like they did during pandemic.
Its uncertain, at this point if T is actually going to keep the tariffs permanently as he may or may not keep them as he says to always change his mind on things.
Escalating trade frictions could be a major sticking point, but the Japanese government has already indicated it's not going to retaliate and wants to find common ground with the US.
That might be in Japan's best interest instead of taking the Chinese or the Canadian approach of escalating the so-called trade war.
To be clear business activities globally and not just in Japan are going to be hampered in the near-term until countries and companies figure out how to navigate the tariff situation.
Yes, unfortunately the global economy could be in for a decline and could affect many economies around the world, and for Japan it could keep Japan in its stagnation mode for a very long time unless the Japanese start to figure out how to navigate this situation correctly.
It might not be as severe as 2008 or it could be worse than the great recession and its again just too early to say whats going to happen but if the global stock markets are any indication its going to be a difficult ride for some and maybe many.
A GDP annualized growth of 2.2 percent is only an estimate of what the economy might do if it grew exactly the same for 4 consecutive quarters which it never does and especially doesn't do in Japan.
But three consecutive quarters of growth is good for Japan as it needs to keep the momentum going which it usually doesn't do as it always ends up a little and then down a little each quarter.
Potentially it could dampen Japan's GDP growth, but it should be remembered, Japan doesn't have a real free trade agreement with the US which seems kind of strange as Japan and the US are big trade partners.
There have been attempts like the Asia-Pacific deal but no one to one trade agreements exists between the two countries.If maybe Japan had some kind of free trade agreement that lowers tariffs for both countries it would go a long way to helping both countries.
And yes, again, potentially is could be a problem for Japan it doesn't have to be if the Japanese leaders can figure out a way to communicate what they need from the US, and maybe its time to reduce those huge tariffs Japan has on some US products.
But if people are thinking if Japan reduces tariffs on US cars it might help car sales in Japan. Lowering tariffs on cars in Japan will never improve US car sales in Japan as Japanese consumers just don't want to need US cars.
Yes, again potentially it could reduce Japan's GDP by 0,7 percent, but if Japan had a more robust economy, that didn't rely only in exports it might not be that big of deal.
And Japan's economy seems to be too focused on exports while its domestic economy doesn't seem to get be as strong as it should be which should be a concern for the Bank of Japan and the Japanese government.
There seems to be a lot of numbers thrown around related to how much US tariffs are going to hurt Japan's GDP. While the shock has been sinking in to what could happen, at this time Japanese government leaders are in the US to find a way to limit US tariffs and maybe there might even be a new free trade agreement reached between the two countries.
The Japanese stock market like other stock markets expresses its disapproval of the tariffs with a major decrease in stocks and of course many people might have lost millions of yen in the process.
The tariffs T imposed on steel and aluminum is not only going to hurt foreign suppliers of those products but also any company or any US family that needs to buy steel and aluminum products in the future, as US companies are going to pass-on their tariffs along the supply chain until it reaches the final retail customer.
The same can be said for foreign cars sold in the US, as all tariffs are going to be passed along the supply chain and again to the final retail customer in the US.
To be fair, it seems T is just making up the numbers with no real economic or scientific reasoning behind the numbers. Tomorrow, next week, next month it could be something different.
That is very difficult for any company or even for the stock markets to figure out what he is exactly doing at this time.
Again, while Japanese cars have been a significant economic driver for the Japanese economy and the US remains Japan top market, and yes, thousands of small subcontractors are part of the Japan care production web, it should be noted that maybe Japan has relied on cars as its main and significant economic driver for too long as it needs other products to drive the Japanese economy now.
The volume of exports to the US is good at 28.3 percent but again there should be a more diverse mix of products. For example at one time, maybe Japanese electronics had a larger share of the export mix, and what about Japanese TV's or Japanese washing machines and so which use to lead the world, but these days maybe South Korea and even China has more market share and even Taiwan related to TV's, electronics, washing machines and so on. Japan seems to have lost its way in some of these products.
Business confidence in Japan just isn't what it used to be as Japan has lost its swagger and doesn't seem to have much confidence these days. Japan back in the 60's, 70's, and even 80's led the world in making products and had a lot of confidence but not these days.
Gone is the swagger of the Sony's, the Mitsubishi's, the Panasonic's and even Toyota doesn't seem to have as much swagger as it used to.
Yes, Japan is at a critical juncture but its seems be at a critical juncture a lot these days and every time the Japanese economy begins to get back on track and get out of it stagnation phase it stumbles and its back into another recession type period.
Yes, the tariffs are a variable that Japan and the rest of the world wasn't looking for but, to be honest T is doing exactly what he said he would, and maybe definitely not Japans or any other countries fault but its the US who is at fault here for not listening and understanding what T had planned to do all a long.
Wage increases are needed in Japan and important as maybe Japan has some of the lowest wages and salaries among the OECD countries and yes, inflation since the pandemic continues to hang on in Japan while in the US it has decreased significantly on many items.
Not to blame anyone in the Japanese government and or the Bank of Japan, but you would think that something could have been done by now for the good of Japanese society and Japanese households.
The challenges is going to be what will the wage increases be for Japanese small and midsize companies as many of them just don't have the resources needed to match the wage increases of the larger Japanese companies.
Up to 70 percent of the Japanese workforce,which means it they small and midsize workers don't get the same size wage increase that could potentially mean that is 70 percent of the Japanese workforce who are consumers and won't like their wage increases and won't spend in the Japanese economy is which needed for the economy to grow again.
The BOJ maybe needs to increase the key rate a few more times like the US did when it was going through its inflation challenges. But the real problem is can the Japanese economy handle the key rate increases which potentially could have some significant side effects related to the rate increase.
And again, even large Japanese companies are going to have challenge because of the increase in global raw material prices and the yen's depreciation and its could be even worse for small and midsize companies. Of course they can try to pass-on their costs to the next in the supply chain but sometimes that is not so easy to do.
The Japanese government needs to step in and aid the small and midsize companies with some kind of supplement that helps them reach the level of wage increases that the large companies are going to give. If not then workers at the small and midsize companies are going to be left behind and feel like have-nots compared to the large company workers who will be considered the haves of the economy.
Many seem to forget the trade war that developed between the US and Japan in the 80's when Japan was flooding the US with all of its low-priced but quality products. Many in the US were alarmed and upset that Japanese were gaining a lot of market share compared to US products. But the problem was not the Japanese products taking over the US markets, it was that the US products at that time were not very good and the US basically had become lazy and lost its way. Unfortunately the same could be said for Japan today.
Yes, Japan has relied on the world economy for a very long time to drive its economy and maybe to be fair, has somewhat neglected its domestic economy over its exports. Now might be a good time to re-think what it's doing and find ways to strengthen its domestic economy so that it doesn't have to rely so much on exports to the global economy.
The Japanese economy, all things being equal maybe looks like it has turned the corner on de-flation and or stagnation but GDP growth is just the tip of the iceberg as what happens in everyday life with Japanese households it what the real economy is and not some GDP number that most people can't relate too.
Finally the US tariff situation shook the global economy like no other event in recent history and not even the great depression of 2008 was like this situation, with stock markets globally losing billions of dollars or trillions on yen in Japan.
Not to be pessimistic but potentially it could get worse or it could almost change overnight if the correct leadership in the US finds a way to steer the US back into where it should be for the good of the world.
Have a nice day!
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