Trump prices are already leading to Japanese companies to move more production in the United States

Japan’s export volume to the United States has fallen to the lowest level since 2021 while its global exports remain above the average of 2024, Marcel Thieliant, head of Asia-Pacific Economics, said on Thursday, citing recent data from the Bank of Japan.

“What becomes more and more clear is that companies meet American prices by intensifying production in their American subsidiaries,” he said.

In the second quarter, the subsidiaries abroad of Japanese manufacturers in North America reserved the growth of sales which was 6 percentage points faster than global exports from Japan to the region.

And in July, production in US factories in Toyota climbed 28.5% compared to a year ago, but production in its factories in Japan dropped by 5.5%.

In addition to this change in production is an influx of capital. Thieliant estimated that Japan’s direct foreign investment in the United States is about to reach a record this year, while global IDE will probably be little modified. Consequently, the United States could accommodate 47% of the Total IED coming out of Japan this year, marking a summit of all time.

But all this investment is not only due to Trump’s trade agreement, he added. Instead, the key engine is the strong American economy because it surpasses Europe, which was previously a larger destination for the Japanese IED. In fact, the 2024 surveys showed that almost half of Japanese manufacturers with subsidiaries abroad had planned to extend American production.

“By backing up, falling exports are a headwind towards economic activity in Japan,” said Thieliant. “But as long as companies are able to continue to serve American customers via their American subsidiaries, the impact on business profits, investments and wage growth should be minimal.”

Japan’s investment could see an even greater increase in the coming years. In July, the United States concluded a trade agreement which lowered the tariff rate on Japan to 15% compared to the previous 25% of Trump. In exchange, Japan has agreed to pay $ 550 billion into the main American industries via a “Japanese / United States investment vehicle” which will be deployed “in the direction of President Trump”.

They include infrastructure and energy production, semiconductors, critical minerals, pharmaceutical products and shipbuilding, according to an information sheet of the White House at the time.

Wall Street had expressed serious doubts that the $ 550 billion will really materialize. Piper Sandler analysts said in July that Trump’s prices are illegal – and face an in progress legal challenge – while noting that the Japanese investment guarantee is delivered with little concrete details.

“Our business partners and large multinationals know that Trump’s prices are on fragile legal ground,” they wrote. “Consequently, we find it difficult to believe that many of them will make massive investments in the United States that they would not have made otherwise in response to prices that might not last.”

Meanwhile, on the other side of the trade agreement, a renewal of American manufacturing will require more workers with the right skills, and the CEO of Ford Jim Farley learned the alarm that the active population has shortages.

The country is short of 600,000 factory workers and 500,000 construction workers at the moment, and will need 400,000 automotive technicians over the next three years, he wrote in a LinkedIn article in June.

And on Monday, he said that the United States had neglected the workforce to build and maintain data centers and manufacturing facilities.

“I think the intention is there, but there is nothing to fill the ambition,” said Farley Axios. “How can we reshape all these things if we don’t have people to work there?”

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