What is trade friction? A simple explanation of its causes and its impact on Japan

In recent years, as economic activities around the world have become increasingly intertwined, the term "trade friction" has been attracting attention. This is no longer just a passing economic issue; it is becoming a symbol of strategic conflict between nations and the battle for technological supremacy. In particular, trade friction between the United States and China is having a serious impact on the global political and economic order.

This article provides a systematic explanation of trade friction, from the basic definition to historical examples, recent trends, and its impact on the Japanese economy and corporate activities.

Trade friction refers to a situation in which interests clash in trade activities between nations over one country's export surplus or the other country's industrial protectionism, leading to the taking of countermeasures such as raising tariffs or restricting imports.

Main causes

Trade imbalance : When one country runs a large trade surplus with another, it creates a sense of economic unfairness on the part of the recipient.

Protectionist policy : In order to protect domestic industries, high tariffs are imposed on imports and quantitative restrictions are set.

Exchange rate adjustment policy : Policies aimed at intentionally depreciating the currency in order to increase export competitiveness are a source of friction.

State subsidies/technical assistance : When governments provide support to specific industries, it creates an imbalance in international competition.

These factors crop up intermittently in the tug-of-war between free trade and protectionism, creating political and economic tensions.歴史的な貿易摩擦の事例

Trade friction is by no means a recent phenomenon. Many conflicts have arisen between countries in the past, and these have had a major impact on the current state of international trade. Below are some representative historical examples.

US-Japan trade friction (1980s)

In the 1980s, Japanese automobiles and home appliances swept the US market, dealing a major blow to US manufacturing. As a result, the US strongly demanded that Japan impose voluntary export restraints, and Japan was forced to make concessions in semiconductors and automobiles. This case is a typical example of how trade friction is closely linked to national strategy and industrial policy.

US-China trade friction (2018-)

In 2018, under the Donald Trump administration, the US introduced large-scale tariff measures against China. This triggered a fierce retaliatory battle between the two countries, and serious conflict continues to this day.

EU-US aviation friction

State subsidies to Boeing (US) and Airbus (EU) have been questioned at the WTO, resulting in a long-standing exchange of tariffs and countermeasures. This is another example of trade friction caused by national industrial policies.

Intensifying US-China friction and deepening structural conflict

Even in the 2020s, trade friction between the US and China has not calmed down, but has become more complex and strategic. Beyond the tit-for-tat exchange of tariffs, technological hegemony and economic security in cutting-edge fields such as semiconductors, AI, quantum technology, and 5G have become the main axis of conflict.

The US is working with its allies to reduce its dependence on China and strengthen export controls, while China is strengthening its counter-position by promoting in-house production and leading economic blocs. The conflict between the two countries has gone beyond trade and is showing signs of becoming a long-term geopolitical strategic conflict.

Semiconductor export restrictions and technology containment

The US has introduced a policy to restrict exports of advanced semiconductors and manufacturing equipment to China from 2022 onwards. The restrictions were also applied to Japan and the Netherlands, and companies such as Tokyo Electron and ASML were also targeted. As a result, China's development of advanced technology has been suppressed while forcing allied companies to make a choice.

Conflict in the technology sector: TikTok and cloud hegemony

The US's policy of exclusion against the Chinese app "TikTok" has gone beyond a simple privacy issue and developed into a battle for digital hegemony. In addition, regulations and investment restrictions have been introduced in cloud infrastructure, restricting the activities of private companies in the context of economic security.

Friction over the green industry: The impact of the IRA Act

The Inflation Control Act (IRA), enacted by the US in 2022, introduced subsidies for domestic production of EVs and renewable energy-related products. As a result, Japanese, Korean, and Chinese companies are suffering disadvantages, and complaints have been filed with the WTO and diplomatic negotiations are being held.

Trade friction as a geopolitical risk

The US-China conflict is not just an economic issue, but also contains a geopolitical element of the conflict between democracy and authoritarianism. As a result, friction has arisen in areas such as the Taiwan issue, the South China Sea, and AI weapons development, affecting not only trade but also the entire international order.

Trade friction is not just a political conflict between nations, but a major risk factor that has a direct and serious impact on corporate management.

Changes in tariffs and export regulations have an immediate impact on a company's cost structure, profit margins, and supply system, and may shake the foundations of its management strategy. In particular, for companies that operate globally, it is necessary to view trade friction as part of geopolitical risks. For this reason, management is required to constantly monitor trends in trade friction and plan and implement flexible and rapid countermeasures.

Major impacts

Increased tariff costs : Increased import tariffs will worsen a company's cost structure, making it difficult to pass on the cost to prices.

Disruption to supply chains : High dependency on specific regions increases the risk of supply chain interruptions.

Increased regulatory response costs : It will be necessary to respond to security export controls and data regulations, which will increase the burden on legal and compliance.

Selective investment : To avoid friction, companies will be forced to reselect their destinations and diversify their investments.

These factors are having a serious impact, especially in the manufacturing, high-tech, and financial industries.

Although Japan has a large economy, it is dependent on resource imports and product exports, making it vulnerable to external trade frictions. The following are some representative examples.

Responses of the Automotive Industry

Major automakers such as Toyota and Honda have avoided tariff risks by increasing their local production ratio in the United States. In addition, with the growth of the EV market, they are also diversifying geopolitical risks by building local battery factories and promoting joint ventures.

Semiconductor and Electronic Parts Companies

Companies such as Tokyo Electron and Sony have been forced to reconsider their products for China due to the strengthening of US regulations. On the other hand, new domestic factories are being built in Kumamoto Prefecture and elsewhere, aiming to "achieve both a return to Japan and international diversification."

Agriculture and Food Sector

Japan's agriculture and fisheries industries are also taking advantage of multilateral trade agreements such as the TPP and the Japan-EU EPA to expand into markets other than the United States.

WTO dysfunction and the limits of multilateralism

Currently, the WTO's Appellate Body is not functioning, and its dispute resolution capabilities are in question. For this reason, countries are placing more emphasis on bilateral and trilateral trade agreements and strategic alliances.

The importance of economic security

In Japan, the "Economic Security Promotion Act" will come into effect in 2022, and the management of important materials and technologies is being strengthened. Companies are also being required to make strategic decisions that reflect geopolitical risks.

Trade friction is not simply an economic phenomenon, but a comprehensive international issue that extends to inter-nation dynamics, technological hegemony, and security. In particular, the conflict between the United States and China will continue for the long term, and will inevitably have a significant impact on the global economy.

For Japan, maintaining the free trade system while at the same time diversifying its supply chain, becoming technologically independent, and improving its systems from the perspective of economic security are urgent issues. Companies, too, are required to make strategic decisions based on political and economic trends in order to maintain a competitive advantage in the global market.