Considering Measures to Prepare for Trade War

The President of the United States, Donald Trump, signed executive orders on February 1st, which would impose 25 percent of tariff on products from Canada and Mexico, and additional 10 percent on Chinese goods. It will be activated on February 4th. As Canada and Mexico announced their intention to take countermeasures, concern for a trade war spread in business sectors in Japan. Prime Minister Shigeru Ishiba is going to discuss this issue in coming summit meeting with Trump.

The orders were to impose higher tariffs on the goods from those three countries, aiming at blocking influx of fentanyl and illegal immigration to the US. “I will not stand by and allow our sovereignty to be eroded, our laws to be trampled, our citizens to be endangered, or our borders to be disrespected anymore,” said Trump in his executive order.

 

Three countries immediately responded to Trump’s unilateral decision. Canadian Prime Minister Justin Trudeau announced that Canada would introduce 25 percent of tariff on US products, including beer, wine and lumber. Mexican President Claudia Sheinbaum revealed her decision to consult with her staffs about retaliatory measures against Trump tariff.

 

“China hopes that the US will view and handle its own fentanyl and other issues in an objective and rational manner,” saidChinese commerce ministry, showing their willingness of frank dialogue with the US.

 

It is inevitable that Trump tariff policy will ignite new trade war among those countries and it may cause broader confusion in world trade. The exchange of countermeasures for higher tariff will invite further inflation of raw materials for manufacturings, which may cause slowdown of supply chains. The stock market in Tokyo started with initial decline in the morning of Monday February 3rd.

 

Many Japanese carmakers and manufacturers of car parts have been exporting their products to Canada or Mexico. They are worried about additional tariffs on their exporting products. Some companies consider shifting factories from Canada or Mexico to the US. Other companies which export their products from factories in US to Canada needs to count on negative impact of Canada’s retaliatory measures.

 

Prime Minister Ishiba began to discuss with his staffs how to deal with the summit meeting with Trump later this week. “Japan is the world biggest investor to the US in these five years,” said Ishiba in the discussion at the Committee for Budget in the House of Representatives. Ishiba plans to avoid further tariffs on Japan in the meeting with Trump by emphasizing Japan’s contribution to foreign investment and job creation in the US.

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