Affected by the intensified U.S.-China game and the conflict between Russia and Ukraine, the global supply chain is being split. Japan, the United States and Europe are stepping up efforts to divest China from the world economy. However, if excludes China, the cost of all commodities will rise sharply.
Honda launched a top-secret plan this summer to restructure its supply chain on a large scale to explore whether cars and motorcycles can be built without using Chinese parts. China is the world's largest automobile market. If companies want to increase profits, they must expand their business in China. China accounts for more than 30% of Honda's global car sales. The company said it has been researching various ways to deal with supply chain risks. So, is it possible to completely get out of China?
If 80% of the parts and other goods exported by China to Japan (about 1.4 trillion yen) are suspended for two months, Japan will not only be unable to produce home appliances, cars and resins, but also clothes and food. This means that the production value of about 53 trillion yen (about 2.6 trillion yuan) will disappear (see chart). Waseda University professor Yasuyuki Todo found through a supercomputer that is equivalent to 10% of GDP in Japan every year.
chart from Nikkei Chinese website
After the end of the Cold War , the connection between Japan and China became close. In 2020, Japan's imports from China accounted for 26% of its total imports, which is much higher than the imports from countries such as the United States. Expanding business in China is crucial to improving Japan's competitiveness. If Japan leaves China, the prices of Japanese products will also rise. According to data from Owls Consulting Group, a supply chain researcher, if 80 major commodities such as home appliances and automobiles stop importing from China and converting to domestic production or purchasing from other regions, Japan's annual cost will increase by 13.7 trillion yen - which is equivalent to 70% of the total net profit of manufacturing companies listed on the Tokyo Stock Exchange prime market.
If the increased cost is passed on to a single product, the average price of a Japanese personal computer will rise by 50% and the average price of a smartphone will rise by 20%. Such an increase in is even higher than the increase in prices in Japan caused by the conflict between Russia and Ukraine.
During the Cold War, there was no connection between the supply chains between the East and the West, so it was easy for Japan to "de-Sovietization". Today, from raw materials import to product assembly, Japan is closely connected with China.
