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Japan Begins Trade War with China?

We’ve noted before that the rise of nationalism and anti-Japanese sentiment in China would have immediate consequences for trade between China and Japan. In fact, it already is: auto-giant Toyota, Japan’s largest manufacturing company and exporter, is cutting its exports to China in response to falling demand and factory closings in the country. The Financial Times reports:

Toyota had expected to sell 1m vehicles in China this year, or just over a tenth of its projected worldwide sales. Falling demand in China could also affect its production in Japan: the Nikkei business daily said output at a Lexus plant in southern Japan that makes luxury vehicles for export to China and other markets was being cut by 20 per cent.

Toyota’s competitors Honda and Nissan are likely to follow suit. The Chinese population’s anti-Japanese passions, combined with the government’s use of economics as a weapon in the region, are driving Japan away from China and toward an American-supported multilateral free trade pact known as the Trans Pacific Partnership (TPP). At the moment, this looks like a minor defeat for Japanese automakers, but in a country as export-dependant as China, one might question the wisdom of alienating your largest trade partners.

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