Navigating Trade Shocks: The Impact of the US-China Trade War on Japanese Exporters and MNEs

This study examines how external shocks spread internationally to firms in third countries through Global Value Chians, focusing on the impact of the US-China trade war on Japanese firms. Firms in Japan that heavily relied on exports to China saw a 7.6% drop in exports, with non-MNEs being hit the hardest. Japanese MNE affiliates in China experienced a 34% decrease in exports to the U.S., though the overall impact was limited, as only a few subsidiaries were involved in U.S.-bound exports. Local sales of Japanese affiliates in China fell by 28%, but many of these firms compensated by increasing exports to Japan and other Asian markets. The dispute also led to a slight reduction in procurement from parent companies in Japan, though this effect was minor. In sum, non-MNE exporters in Japan and MNE affiliates reliant on North American exports were most affected, while MNEs with diversified global investments proved more resilient and better able to mitigate the trade war's impacts.