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Trade war

Nearly 70% of Japan CEOs say trade war is taking a toll

Majority in Nikkei survey support Tokyo's push to take in more foreign workers

A man walks near a container ship at a Tokyo port. Many business chiefs polled by Nikkei said they had been targeted by tariffs in the U.S.-China trade war.
Many business chiefs polled by Nikkei said they had been targeted by tariffs in the U.S.-China trade war.   © Reuters

TOKYO -- Japan's corporate leaders have grown increasingly concerned about the U.S.-China trade war's impact on earnings and the overall economy since the two powers began imposing tit-for-tat tariffs in July, a Nikkei survey showed Wednesday.

The quarterly survey of over 100 business chiefs found that 69% percent of respondents expect the trade dispute to hurt earnings, up 8.5 percentage points from a September reading.

"The protracted U.S.-China opposition is having a negative psychological impact on the global economy, raising uncertainty over individual consumption as well as equipment investment in both countries," said Kohei Morikawa, president and CEO of chemical maker Showa Denko.

As to the concrete effect on operations, many cited an impact on sales, with a leading 31% saying the trade friction caused market conditions to worsen, followed by 18.6% claiming they had been targets of U.S. tariff hikes or retaliatory measures. Meanwhile, 17.9% said being a target of tariffs and retaliatory measures had impacted their procurement process.

Asked how they were responding to the situation, 21.3% of the corporate leaders said they were discussing how to share the burden of increased costs with clients and suppliers, while 16.9% said they were switching production sites or suppliers. Another 16.9% said they were passing on the higher costs by raising product prices.

"We rethought production locales for certain products," said Mitsubishi Electric President and CEO Takeshi Sugiyama. The company is in the process of shifting output of U.S.-bound machine tools to Japan from China.

Recent moves have further inflamed Sino-American tensions, including the recent arrest of the chief financial officer of Chinese telecommunications giant Huawei Technologies at Washington's behest, as well as efforts to freeze out Huawei technology in various countries, leaving no end in sight to the trade war.

"The U.S. and China's exchange of sanctions and reprisals has grown extreme. It defies prediction," said Akihiro Nikkaku, president of materials maker Toray Industries.

Just 0.7% of respondents expect the trade war to wrap up quickly, while 64.1% said it will continue until around the time of the 2020 U.S. presidential election. But 7.6% predicted that U.S. President Donald Trump would win reelection and tensions would persist into 2021 and beyond, and another 7.6% said the discord would continue even if a new administration were voted in.

Over half of respondents, or 51.7%, said they supported or somewhat supported the Japanese government's recent move to take in more foreign laborers to address a critical labor shortage. Just 1.4% said they disapproved or somewhat disapproved, while 41.4% expressed ambivalence.

The country already hosted a record 1,278,670 workers from overseas as of October 2017. Those laborers have become an indispensable asset for Japanese companies, and many in the business community have called for opening the door wider.

"The labor shortage is obvious," said Hitoshi Ochi, president and CEO of Mitsubishi Chemical Holdings. "We need to expand our intake of foreign workers once the labor environment and social security systems are properly arranged."

But Japan's existing technical internship program for foreign workers has been criticized for poor labor conditions, and concerns about hiring more foreigners appear to run deep.

The government should "firmly set concrete and realistic conditions for hiring and accepting foreign laborers and build an environment they can work easily in," said Kazuyuki Inoue, president of builder Shimizu.

"What's important is to hire employees who have the skills and qualities needed to help business grow regardless of their nationality, not to simply bring in foreign workers to fill the labor gap," said insurer Sompo Holdings' CEO and President Kengo Sakurada.

A leading 29.7% of respondents said they plan more local hiring of highly skilled overseas workers, including graduates of college and graduate school, while 15.9% said they would consider doing so. As for foreign students studying in Japan, 30.3% said they would hire more, and 14.5% said they would consider it. On both points, very few respondents said they would take on fewer or no such employees.

"We aim to actively further our hiring of highly skilled foreign workers, from the standpoints of responding to an expanding volume of business overseas as well as diversifying our workforce," said Yoshihito Yamada, president and CEO of Kyoto-based electronics maker Omron.

Meanwhile, 55.2% of respondents expect the global economy to expand in the coming six months -- down 16.3 percentage points from October and 24 points from June, before the trade war began in earnest -- while 11% said the economy would worsen, in the harshest outlook in two years.

A worsening Chinese economy was most widely cited as the reason for a hypothetical contraction. China's output of products like machine tools is losing steam, while falling equities and declining corporate earnings appear to be starting to take a toll on consumption.

The survey drew responses from 145 companies from Nov. 27 through Dec. 13.

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