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Mexico-reliant Japanese companies scramble to review supply chains

US President Donald Trump’s threat of a five per cent tariff on all goods from Mexico is forcing Japanese companies to re-evaluate their North American supply chains, with the auto industry in particular expected to suffer a heavy blow.

Many companies had been pouring money into Mexico as an alternative production hub to China, which faces heavy tariffs from the US. But with that haven now in jeopardy, businesses face difficult decisions on how to avoid the growing trade war.

The balance of Japan’s direct investment in Mexico increased sevenfold in a decade to $10.4bn as of the end of 2017, according to the Japan External Trade Organization. The number of Japanese companies operating there surged to 1,182 in 2017 from 384 in 2007, overtaking the 1,179 in Taiwan, Foreign Ministry data shows. Automakers are the key drivers behind this trend. They have invested heavily in Mexico since early this decade, taking advantage of its highway and rail connections to the US, as well as its cheap labour, which costs one-sixth as much as in America.

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