Almost 90% of Japanese companies see Trump as bad for business, Reuters reports

Almost nine out of 10 Japanese companies expect U.S. President Donald Trump’s policies to negatively affect business, a Reuters survey showed on Thursday, the clearest sign yet of mounting worry in the United States’ top foreign direct investor.

The results of the survey show how the prospect of higher tariffs and increased trade friction between the United States and China has clouded the outlook for companies in the world’s fourth-largest economy.

Japan, a firm U.S. ally, is also deeply reliant on China as both a manufacturing base and a key market for its machinery and other exports.

About 86% of respondents said Trump’s policy measures would have an adverse or somewhat adverse effect on their business environment, with the remainder expecting a positive or somewhat positive impact.

In the same monthly survey in December, 73% said Trump’s second term in the White House would be harmful to their business environment. Trump officially took office last month.

Among the firms that regarded Trump’s policy initiatives as negative, 72% picked his trade strategy – including imposing more tariffs – as the most detrimental factor, and 26% chose deepening friction between the United States and China.

“Ratcheting up protectionism has nothing but a negative effect on the global economy,” a manager at an information services firm wrote in the survey.

Trump has already announced 25% tariffs on steel and aluminum imports, imposed 10% tariffs on goods from China, and threatened Canada and Mexico with steep tariffs, which are currently on a 30-day hold.

He has also directed his economics team to devise plans for reciprocal tariffs on every country that taxes U.S. imports and to counteract non-tariff barriers.

Japan does not impose tariffs on cars, but the U.S. government said during Trump’s first term that a variety of non-tariff barriers impeded access to Japan’s automotive market.

On Tuesday, Trump threatened tariffs “in the neighborhood of 25%” on auto imports as soon as April 2.

“If the auto industry took a hit from tariffs worldwide, semiconductor sales may be affected as well,” an official at an electronics company said, underlining a potential ripple effect.

Among the firms that saw Trump’s policy measures as positive, 37% picked deregulation and tax cuts as the most beneficial factor, while another 37% chose his policy to help boost fossil fuel production.

Asked about their plans for business operations and investments in the United States, 16% said they were taking a more cautious stance, while 80% said they had no plans for change.

During his first in-person meeting with Japanese Prime Minister Shigeru Ishiba this month, Trump pushed Japan to invest in U.S. energy and technology and sought a way out of a dispute over Nippon Steel’s (5401.T), opens new tab $14.9 billion bid for U.S. Steel (X.N), opens new tab.

Trump said Nippon Steel was now looking at an “investment not a purchase”, and he was fine with that. Japan’s top government spokesperson Yoshimasa Hayashi later said the Japanese steelmaker was considering proposing a bold change in plan from its previous approach of seeking an acquisition.

The survey was conducted by Nikkei Research for Reuters for 11 days to February 14. Nikkei Research reached out to 505 companies and 233 responded on condition of anonymity.

On the Bank of Japan, 61% of respondents saw its recent rate hike as appropriate, while 25% believed the step was taken too early and 15% regarded it as too late, the survey showed.

The BOJ raised interest rates to 0.5% from 0.25% in January on the view Japan was on the cusp of sustainably achieving its 2% inflation target.

“The yen’s excessive weakness caused the continued outflow of national wealth. To arrest the trend, further interest rate hikes are in order,” a manager at a wholesaler said.

“That would prompt those companies that cannot survive in a ‘world with interest rates’, which ought to be a normal state, to bow out or transform themselves.”

Asked about the ideal timing for the next rate hike, 24% picked the July-September quarter this year and another 24% selected “next year or later”, while yet another 24% indicated that rate hikes were not desirable at any time.

The central bank’s hawkish board member Naoki Tamura said this month that the BOJ must raise interest rates to at least 1% by the second half of the fiscal year beginning April.

About 44% of survey respondents said an interest rate increase to 1% would adversely affect their capital spending, while 21% said rate hikes beyond 1.5% would have that effect.

“In parallel with rate hikes, we want the government to expand measures to facilitate capital spending,” an official at a rubber manufacturer said.