With the US enacting another round of tariffs on Chinese goods, Japanese companies that have production in China are scrambling for alternatives to minimize the fallout from the trade war, Nikkei Asian Review reported.
An additional 15% tariff was imposed on 3,243 items, including many consumer goods like clothing and watches, prompting companies across a wide range of industries to consider shifting production to Vietnam and other nations in the Southeast Asia and raising prices to cope.
Uniqlo operator Fast Retailing bases much of its production in China and ships goods from there to the 52 stores it operated in the US as of the end of July. The North American market as a whole accounted for about US$847 million in sales, or 5% of Uniqlo's total for the year ended in August 2018.
The tariff war previously affected only a handful of the apparel retailer's products, such as leather belts. But the latest round imposes higher duties on key items like T-shirts and pants.
"Our US executives have come to Japan so we can discuss the level of impact and how to respond," a Fast Retailing executive was quoted by Nikkei as saying.
The company is looking at moving some production to Southeast Asian nations like Vietnam and Cambodia, but this shift comes with its own challenges.
"We still rely on China for raw materials, so we could see higher costs in procurement and in shipping the finished products to the US," a source familiar with the matter said.
Any additional costs could be passed on to customers if Fast Retailing cannot compensate for them.
Photocopiers and all-in-one printers are also now subject to higher tariffs. Kyocera President Hideo Tanimoto said in early August that the company will respond by switching the output at its Chinese and Vietnamese plants.
The Chinese factories currently make items for the American market, while the Vietnamese plants produce those for Europe. The goal is to swap them by the end of March.
"We expect a limited effect on our earnings," Tanimoto said. But adjusting supply chains and other necessary changes could cost the company tens of millions of dollars.
Other Japanese companies such as department store chain Takashimaya, drugstore Matsumotokiyoshi or electric wire manufacturers Hitachi Metals and Furukawa Electric have previously announced plan to shift production to Vietnam.
