10 July 2018

Donald Trump’s trade war is worrying Japanese car-parts giant Denso as it plans China expansion


Denso Corp, whose US$37 billion market value exceeds Fiat Chrysler Automobiles, sees the threat of US tariffs of as much as 25 per cent and reciprocal levies from trade partners as a “grave concern”, Executive Director Yasushi Matsui said. The duties are set to hit right as Denso readies an expansion in China, along with a war chest worth at least US$9 billion for investments aimed at broadening its business beyond top customer Toyota Motor Corp.
“A trade war is not the correct course,” Matsui said last week at Denso’s headquarters near Toyota City, about halfway between Tokyo and Osaka. “As long as the rules are free and fair, we have confidence we won’t lose to anyone.”


The US will impose tariffs on US$34 billion of Chinese goods on Friday – unless Trump walks back his hard-line stance – and China will the same day impose countervailing levies on products including car imports from the US.

The Trump administration is also considering additional tariffs of up to 25 per cent on national security grounds, prompting companies from Toyota and General Motors to Continental and Magna International to warn of higher prices for consumers, less investment and fewer jobs.

The fate of the North American Free Trade Agreement is also a worry because Denso components criss-cross the US-Mexico border multiple times, Matsui said, and the company is currently trying to calculate the potential cost should the agreement get torn up.

Escalating trade friction creates a quandary just as Denso considers spending billions of dollars in acquisitions or investments to procure new technologies and skilled staff aimed at strengthening its position in autonomous driving and vehicle electrification.


Denso could pay as much as a trillion yen (US$9 billion) “in one shot” for the right company, but targets on the scale of tens of billions of yen are more likely, Matsui said.

Denso also aims to increase venture investment to as much as 10 billion yen (US$90.5 million) annually, he said.

Denso sees the maturing of automated-driving and electric-car technologies as a chance to increase its customer base.

From near-total dependence on Toyota in those areas now, Denso aims to have 20 per cent to 30 per cent of business related to automated driving from outside Toyota by 2020, Matsui said.

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