No single company can act as an economic indicator for a region, but Japanese robotics maker Fanuc comes close. Its recent profit warning is telling us that collateral damage from the U.S.-China trade war is spreading wider and faster than many investors suspected.
Yamanashi-based Fanuc cut its full-year profit and sales targets as fallout from the U.S.-China trade war grew fast. It trimmed the former by 3.1% to about $635 million, well short of the $940 million estimated by analysts.
It is Fanuc's second annual profit forecast downgrade this year, following two in the previous fiscal year. It will not be the last as the trade war devastates machine tool orders.
Fanuc's corporate fingers, if you will, are on the pulse of Asian supply chains. Its main business is making machines for automotive, industrial and technology producers. The core is commercial robots and computerized numerical control systems, which function as brains for machine tools.
As such, the 22% drop in July-September revenues suggests the gears of Asia's tech-based economies are slowing in unexpected ways.
The trade war gets much of the blame. It is hard to take seriously Donald Trump's claims that a "phase one" trade deal with Beijing is imminent as Chinese officials contradict the U.S. president.
Given Trump's rising political peril in Washington, I cannot see this White House throttling back on tariffs. What better way to cheer Trump's base than ratcheting up trade tensions anew?
Japan's export-led model is uniquely reliant on demand from China and the U.S. As these two giants brawl, Brexit-plagued Europe is not picking up the slack. This explains Fanuc's place on the front lines of a Japanese slowdown that could end in recession.
It is not alone, of course. Japan's machine tool orders dropped 35.5% in September year-on-year, the fifth fall of more than 30% this year. In early October, industrial robot supplier Yaskawa Electric missed its full-year revenue estimate by 10%. In the same sector, Nachi-Fujikoshi also scaled back sales expectations.
Indications from Fanuc are not comforting, as these things go. In February, then-CEO Yoshiharu Inaba predicted that the drop in demand was over. Now his team admits that there are no indications of a rebound anytime soon.
On top of Trump's trade brawl with China, and Abe's with South Korea, Fanuc and its peers are grappling with higher consumption taxes at home. Somehow, Abe's government thought October was a wise time to hike levies to 10% from 8%.
Then there are the longer-term risks. President Xi Jinping is investing untold billions of dollars is making China the leader in everything from robotics to self-driving vehicles to artificial intelligence by 2025. Abe is more concerned with geopolitical ambitions than reinvigorating Japan's innovative instincts.
As the trade war hits Japan's most innovative companies, there is reason to fear what comes next. The recent U.S.-Japan trade deal ignored the issue of car taxes. Trump slapping 25% levies on autos and auto parts will wreck Fanuc's 2020 and that of the broader economy.
Fanuc is in some ways unrepresentative of Japan Inc., meaning it might fare better than peers as economic headwinds intensify. It is a prime -- and rare -- example of Abe's success in getting Japanese companies to internationalize business practices.
In 2015, a year into Abe's governance push, notoriously opaque Fanuc was adding a shareholder-relations department, meeting stock owners and boosting dividends -- firsts for it.
It had been one of Japan's most enigmatic companies. Its windowless campus near Mount Fuji houses armies of robots making other robots. Unlike other manufacturers, Fanuc kept its factory floors in Japan.
Its secretive culture limited email contact outside its walls and communications with reporters, analysts and investors. Abe's policies, with an assist from activist investor Daniel Loeb, helped nudge Fanuc out into something approaching the open -- only that open turned out to be a hostile global environment.
Despite its reforms, Fanuc could indeed fall victim to global trade tensions just like any of its more opaque rivals, and the uncertainty of those tensions only adds reasons to worry about Japan's prospects for 2020. That, and warning signs emanating from robots near the slopes of Mount Fuji.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."