The Structure of Supply Chains and the Impacts of Trump 1.0 Tariffs: Evidence from Japanese firms’ sales to North America

This study empirically investigates how the US–China trade war affected the North American sales by Japanese manufacturing firms between 2014 and 2021. Their dominant sales channels by aggregate value are local sales within North America, followed by exports from Japan, while third-country exports, including from China, are quantitatively small. Econometric analysis reveals that, except for sales by affiliates in Mexico, which enjoyed a positive trade diversion effect, US tariffs on China caused no significant changes across all major channels on average, including sales by affiliates in the US and China. This is likely due to a limited reliance on China as a primary large-scale export platform to the US and product differentiation from Chinese imports, reflecting their historical strategy of 'quid-pro-quo FDI' in the US during the 1980s-1990s. However, some heterogeneous impacts emerged, depending on whether an affiliate’s location was the firm’s main channel for the North American market; for instance, affiliates in ASEAN that served as the main channels experienced a positive trade diversion effect. These findings suggest that Japanese manufacturing firms did not significantly restructure their supply chains for sales to North America during the Trump 1.0 period, displaying only minor quantitative changes and heterogeneous effects.