Honda supplier rethinks China relationship as trade war bites

[TOKYO] As the US-China trade war expands into the auto, steel and rare earths sectors, few companies are feeling the pressure more than top Japanese car parts supplier Daido Steel.
The supplier to Honda Motor and other major marques is facing a trio of headwinds: a 50 per cent tariff on US imports of steel, a 25 per cent duty on foreign-made cars and a levy on parts, and China's tightening of exports of rare earths – minerals critical to make magnets for car motors.
'They have started putting up walls,' chief executive officer Tetsuya Shimizu said in an interview at Daido Steel's headquarters in Nagoya. 'This will have a massive impact on the stability of the global economy.'
It's also having major implications for the sprawling network of speciality manufacturers that are critical to the global automotive industry and now find themselves stuck between feuding superpowers.
For Daido Steel, the trade war has meant renewing a push to build rare earth supply routes outside of China, which accounts for almost 70 per cent of mined material and about 90 per cent of global refining of the metals.
Some new routes are already starting to form, mainly from Australia, and Shimizu said there's potential in the US, Canada and Brazil. But progress has been slow due to high costs and low supply, he said, underscoring the immense challenge facing the world's efforts to wean from their dependence on China.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Daido's struggles also signal that the true toll of the trade war on the auto sector will be magnitudes more than the billions of US dollars forecast by top carmakers, including Ford Motor and Toyota Motor. And the constant of roller coaster of escalating, then de-escalating, tensions has left companies scrambling to maintain business ties under a cloud of uncertainty.
When Trump initially imposed 25 per cent tariffs on steel imports in March, Shimizu was able to reassure clients in the US that business could continue as normal. Customers value Daido Steel's products enough to wait months for shipments to arrive and, if they could buy comparable goods domestically in the US, 'they'd already be doing it', he said.
But his confidence vanished earlier this month when duties doubled.
'At some point, it stops making sense as a business,' Shimizu said. 'Asking customers to pare back orders or lean on inventory or lower production could negatively impact the entire enterprise, but that risk might be unavoidable.'
Daido Steel earns most of its money supplying products to Japan's automakers, many of which sell cars in the US that are manufactured or assembled elsewhere. Collectively, the top Japanese auto brands are bracing for a US$19 billion hit from tariffs.
Several Japanese carmakers have already started to shift or lower US production, leaving suppliers such as Daido Steel at the mercy of their customers' rapidly changing plans. In May, the steelmaker withheld full-year profit guidance for the current fiscal year and forecast a 34 per cent drop in first-half net income.
'It comes down to how carmakers respond,' said Mikine Kishi, general manager of the company's corporate planning department. 'If they decide they're not going to manufacture in Japan anymore, or that they will lower total production volumes, that would have an extremely big impact on our business.'
The US and China appear to have reached a detente, and Trump has signed an order that prevents multiple tariffs from piling on top of each other. But rare earths are proving to be a particular sticking point in trade negotiations.
China's export controls on seven individual elements, and magnets that contain even tiny amounts of them, left sectors from auto to defence urgently trying to find workarounds. Uncertainty over supply lingers, though Beijing said this month it's accelerating the review of rare earth export license applications and has approved some requests.
Daido Steel had a head start in diversifying its supply chain. Back in 2010, China briefly imposed a de facto ban on exports of rare earths to Japan following a maritime dispute, kick-starting industry efforts to break their reliance on the nation. Success has been limited though: Japan depends on China for 60 per cent of its rare earths supply, down from 80 to 90 per cent.
As well as seeking alternative supplies, Daido Steel focused on new technology to use fewer rare earths.
One of the company's key products is a neodymium magnet that does not include heavy rare earths, including dysprosium or terbium, which has been used by Honda since 2016. Daido Steel also supplies magnets indirectly to automakers by way of Aisin and Denso, two of Japan's biggest suppliers.
Daido Steel wants to expand production and industrial use of those magnets, betting that customers will increasingly look for non-Chinese supply. It also plans to build a manufacturing plant in the US, though Shimizu did not specify when or where that will happen.
It would be a major disappointment if the US should slide into authoritarianism, Shimizu said, because that would mean the global economy will eventually have to revolve around America.
'I'm not sure there's enough time for supply chains to transition if the goal really is to produce everything in America for America,' he said. BLOOMBERG

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Straits Times

2 hours ago

• Straits Times

Extradition hearing starts for Indonesian businessman said to have bribed officials

Indonesian Paulus Tannos, also known as Tjhin Thian Po, was arrested in Singapore on Jan 17. PHOTO: SCREENGRAB FROM Extradition hearing starts for Indonesian businessman said to have bribed officials SINGAPORE – A court hearing is taking place here that will determine whether an Indonesian businessman in a high-profile corruption case will be extradited to his home country. The hearing on June 23 regarding Paulus Tannos, also known as Tjhin Thian Po, is Singapore's first such proceeding under its extradition treaty with Indonesia. Tannos has been implicated in a major graft scandal involving the Indonesian government's issuing of electronic ID card – known as e-KTP – allegedly causing state losses of about 2.3 trillion rupiah (S$187 million). The Indonesian fugitive, who is believed to have been living in Singapore since 2017, faces one charge of corruption under Indonesia law which is punishable with a maximum sentence of life imprisonment. The crux of the hearing is to determine whethe r there is enough evidence to support the corruption charge Tannos is facing, so he can be sent back to Indonesia. In extradition hearings, the State does not have to prove the fugitive's guilt or secure a conviction. It only has to show that there is enough evidence for the fugitive to face trial if his acts had taken place in Singapore. Delivering the State's opening statement, Deputy Solicitor-General Vincent Leow said the State would rely on evidence submitted by Indonesian authorities. Tannos was the president and director of technology company PT Sandipala Arthaputra, which was a member of the PNRI Consortium – a grouping of companies that won the e-KTP tender in 2011. DSG Leow said under the alleged corruption scheme, the consortium paid 'commitment fees' to officials of the Ministry of Home Affairs of Indonesia (MOHA), which was responsible for the e-KTP tender. Bribes were also allegedly given to members of the House of Representatives of Indonesia, otherwise known as DPR-RI, who appropriated and allocated the government's budget for the project. The gratification amounted to 10 per cent of the total project value, split equally amongst MOHA officials and DPR-RI. According to Indonesian authorities, Tannos eventually paid US$530,000 to a MOHA officer and approximately US$3,799,842 to former Indonesian politician Setya Novanto through the latter's associate. 'The Indonesian authorities' position is that the payment of these 'commitment fees' resulted in the manipulation of the decision-making process regarding the e-KTP project and tender, and that the PNRI Consortium won the tender through unlawful methods,' said DSG Leow. Chief Special Investigator Alvin Tang of the Corrupt Practices Investigation Bureau (CPIB) – the State's only witness – took the stand to give evidence on how he arrested Tannos and brought him to the State Courts. Meanwhile, Tannos' defence lawyer Bachoo Mohan Singh argued that there were about 100 pages in the formal extradition request that were added after the stipulated deadline, and should hence be thrown out. Tannos' other defence lawyer, Mr Suang Wijaya, also objected to the admission of documents prepared by Indonesian authorities as he said they were not 'duly authenticated'. For example, an English document said to be the translation of Tannos' arrest warrant did not have a stamp with official authorisation, said Mr Wijaya. The hearing continues till June 25. Tannos has reportedly been on Indonesia's fugitive list since Oct 19, 2021. He was arrested on Jan 17 by CPIB, and Indonesia put in a formal extradition request on Feb 24. The extradition treaty between Singapore and Indonesia took effect on March 21, 2024. It grants extradition for a list of offences, including corruption, money laundering and bribery, and can be retrospectively applied to crimes committed up to 18 years ago. Christine Tan is a journalist at The Straits Times reporting on crime, justice and social issues in Singapore. Join ST's WhatsApp Channel and get the latest news and must-reads.

Business Times

3 hours ago

• Business Times

Japan says no US demand for defence spending worth 3.5% of GDP

[TOKYO] Japan denied a report that the US directly asked Tokyo to raise its defence spending to 3.5 per cent of annual gross domestic product, with its top government spokesperson saying that the amount of spending was less important than how Japan raises its military capabilities. 'Regarding defence spending, there's no truth to that,' Chief Cabinet Secretary Yoshimasa Hayashi said at a press conference on Monday (Jun 23) when asked about a Financial Times (FT) report that a senior Pentagon official had told Japan to boost military spending. The comments come as US President Donald Trump's administration ramps up pressure on its allies to boost defence spending amid mounting global security concerns. Tensions continue to build with conflict in the Middle East intensifying, Russia's war in Ukraine rumbling on and China continuing to intimidate its neighbours through military activity. US Defence Secretary Pete Hegseth said at a security conference in late May that US allies in Asia should boost total spending related to defence, warning that more urgency is needed to prepare for a potential Chinese invasion of Taiwan. 'Nato members are pledging to spend 5 per cent of their GDP on defence – even Germany,' Hegseth said at the Shangri-La Dialogue in Singapore. 'So it doesn't make sense for countries in Europe to do that while key allies in Asia spend less on defence.' A Pentagon spokesperson told Japanese media outlets last week that the 5 per cent goal should apply to Japan. Nato countries formally approved the plan at their summit meeting over the week, setting a target for defence spending at 5 per cent of GDP. Nato Secretary General Mark Rutte has framed that target as spending of 3.5 per cent on core defence items such as weapons, and an additional 1.5 per cent in defence-related spending such as cybersecurity and infrastructure. In his comments, Hayashi also pushed back against the FT's claim that Tokyo scrapped a meeting of US-Japan defence and foreign affairs ministers in response to the US demand. 'The date for the next Japan-US 2+2 meeting has yet to be decided,' the spokesperson said. According to the FT report, Tokyo decided to put off that meeting after the spending demand from a senior Pentagon official. That demand, reportedly issued by Elbridge Colby, undersecretary of defence for policy, comes as Japan is working towards raising its defence spending to 2 per cent of GDP by 2027 from its long-held stance of keeping it around 1 per cent. BLOOMBERG

Straits Times

4 hours ago

• Straits Times

Tapping rivers, lakes for climate action in S-E Asia could avert 25% GDP loss by 2050: Report

In climate action, adaptation has long been the overlooked sibling of mitigation, or emissions-cutting efforts. PHOTO: AFP Tapping rivers, lakes for climate action in S-E Asia could avert 25% GDP loss by 2050: Report SINGAPORE – The impacts of climate change are expected to claim up to 25 per cent of South-east Asia's GDP by 2050, but such losses can be avoided if countries turn to their snaking rivers and majestic lakes for solutions, says a new report. It is high time to ramp up measures to shield against powerful typhoons, rising seas and heatwaves, and water is well-suited to be the starting point for adaptation efforts, said the report produced by the World Economic Forum and the Singapore International Foundation . About 90 per cent of all extreme weather events are related to water, which also exacerbates other climate hazards. Larger amounts of water vapour in the atmosphere act as fuel for severe storms, while heatwaves and wildfires are related to drought. South-east Asia needs to prepare quickly for the impacts of climate change, yet these adaptation efforts remain under-prioritised and under-supported, said the report released on June 23. A major hurdle is the difficulty in grasping adaptation, as it is often perceived as broad and all-encompassing, noted the paper. Climate adaptation involves protecting people from the impacts of climate change, such as building sea walls to guard against rising sea levels and cooling centres during heatwaves. 'Because it is difficult to measure, the returns on investment in climate adaptation are challenging to define,' said the report. It aims to shift the perception of adaptation by highlighting the importance of the move and quantifying the investment needed. For example , an investment of about US$13 billion (S$16 billion) is needed by 2030 to fortify South-east Asia's adaptation and resilience to various types of flooding beyond existing methods such as irrigation systems and controlling stormwater flow. 'Businesses and investors have a direct interest in backing (adaptation) strategies. It reduces their exposure to risk and ensures business continuity when crisis strikes,' said the report. In climate action, adaptation has long been the overlooked sibling of mitigation, or emissions-cutting efforts. But it has started to gain traction in recent months amid worsening climate impacts. In 2024, global temperatures exceeded 1.5 deg C above pre-industrial times for the first time. Singapore is among the countries preparing a national adaptation plan to guard against climate impacts like sea-level rise and extreme heat. To help policymakers design water-centric adaptation measures, the report outlined a framework focusing on four key areas: reducing damage brought by floods, enhancing alternative sources of water, incorporating technologies and artificial intelligence (AI), and developing financial tools to raise money for adaptation projects. The framework focused on case studies that the region can emulate, such as Belize's five-year project to protect its coasts and reduce pollution and wastewater discharge into the ocean, while protecting the nation's coral reefs. The Central American project, announced in early 2025, will include mangrove planting and harnessing of wetlands to help clean wastewater. While US $32.23 million has been raised – which includes funding from the World Bank's International Development Association – other forms of innovative financing such as carbon credits and blue bonds are expected to be unlocked. Blue bonds are a form of loans given out specifically to protect the ocean, and green bonds are similar loans for environmental projects. Between 2020 and 2023, water-related green bonds grew 30 percentage points faster than the overall green bond market. The Belize project could inspire similar ones in the coastal cities of the Philippines, Indonesia and Vietnam, added the report. On the use of AI, the report highlighted an 11-year-old project in the region called Servir-Mekong, which provides satellite data to help countries along the Mekong River predict and prepare for floods and droughts. The AI system has helped more than 60,000 households in Vietnam's Ninh Thuan province plan and optimise their water usage in the fields. It is the first large-scale, AI-powered water management initiative in South-east Asia. The report comes on the heels of a few other climate adaptation-focused papers published in 2025, which quantified the global investment potential of protecting people from climate change. A May report by global management consultancy BCG and Singapore's investment firm Temasek shows that expenditure for climate adaptation and resilience is projected to rise to between US$500 billion and US$1.3 trillion a year by 2030. They said hazard warning systems, flood pumps and barriers, as well as emergency medical services were among solutions identified as having the most investment potential. An earlier report by Singapore sovereign wealth fund GIC found that adaptation strategies, such as flood protection and cooling systems, could by 2050 make up a sizeable investment opportunity worth US$9 trillion. Shabana Begum is a correspondent, with a focus on environment and science, at The Straits Times. Find out more about climate change and how it could affect you on the ST microsite here.