Japan's Prime Minister Junichiro Koizumi is faced with a choice: save an US$83 billion trade relationship with China or curry favor with leek and mushroom farmers who help keep his party in power.
The pressure on Koizumi to choose the nation's interests over that of his party mounted today as China retaliated against Tokyo's curbs on Chinese farm imports by imposing punitive duties on Japanese cars, mobile phones and air conditioners.
Some analysts reckon Koizumi will back down on the curbs, imposed by his predecessor Yoshiro Mori in April, because they rob Japanese consumers of low-priced Chinese-made goods at a time when they're hungry for bargains. The dispute threatens to inflict more damage on Japan's shrinking economy than China's, which is expected to grow about 7.5 percent a year, analysts say.
Mori wanted to "protect the old vested interests of the farmers," said Richard Werner, managing director of Profit Research Center Ltd in Tokyo. "Koizumi is different -- he is even saying `no sacred cows.'" The decision to slap temporary tariffs of as much as 266 percent on Chinese leeks, shiitake mushrooms, and straw matting came as Mori tried to win farmers' support ahead of a July upper-house election.
Koizumi, who rode a wave of voter support to replace Mori, has pledged to break with his party's past and sustaining his record 85 approval rating depends on putting voters' interests first. Analysts said there's always a danger pressure from within his party may limit room for compromise.
"This could turn into a trade war," said Noriko Hama, chief economist at Mitsubishi Research Institute. "Japan is shooting itself in the foot by going against the tide of free trade." Some Japanese companies are already crying foul.
Skylark Co, Japan's No. 1 restaurant chain operator with 2,339 restaurants across the country, has contracts with Chinese farmers in several provinces to provide a steady supply of leeks, mushrooms and other vegetables. Now, it's finding one of its main supply channels is blocked.
"We've made strenuous efforts to establish our import routes in China in the past three years," said Makoto Suzuki, a spokesman at Skylark, which plans to add 200 more restaurants this year. "The restrictions are causing us great pain." Japan's growing appetite for bargains has helped make Fast Retailing Co, which makes clothes in China and sells them at rock-bottom prices in 500 Japanese stores, the country's most profitable retailer. First-half profit rose almost 150 percent from a year ago.
China's retaliation widens the fallout even further.
The curbs would strike at Japanese automakers like Toyota Motor Corp and Honda Motor Co, which sold a combined 60 percent of the 42,000 cars China imported last year. Japanese cars are gaining market share in China as the country's increasingly affluent population turns to imported models.
China's total car imports tripled in the first quarter of 2001 to 9,023 units worth US$194 million, according to Auto Intelligence magazine.
The retaliation would be more damaging if it was extended to Japanese products made in China. Last year, Japan made about 2 million autos in China, compared with only 30,000 exports to the market. NEC Corp said it won't be affected by the tariffs right now because all its phones sold in China are manufactured there.
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