Japan’s Factories Gain Renewed Attention amid U.S.-China Tensions

Tensions are rising in trade relations between the United States and China, such as the announcement by the United States in October 2025 of “100% additional tariffs’’ on specified items from China.

Trade controls surrounding advanced semiconductors and critical materials have become a persistent risk factor for the manufacturing industry. The impact is spreading to companies in other nations that maintain trade relationships with both countries.

This has brought new, positive recognition of Japan’s manufacturing industry, and a trend toward domestic production is gaining attention.

This article examines the effects of US-China trade tensions on global and Japanese manufacturing. It then explores the background and reasons that Japanese factories are gaining renewed recognition for their capabilities.

The Effects of US-China Trade Tensions on Global Manufacturing

The trade tensions between the United States and China, two major global powers, are having a significant impact on various industries around the world.

This section outlines three ways in which US-China trade tensions are affecting the manufacturing industry.

• ・Normalization of tariffs and export controls
• ・Diversification of supply chains
• ・Priority shift from costs only to supply stability and risk resilience

Normalization of Tariffs and Export Controls

Triggered by recent US-China trade tensions, tariffs, export controls, and sanctions are no longer temporary deviations from normal trade conditions. They have become standing preconditions that manufacturers must factor into their planning.

Since 2022, the United States has significantly tightened controls on exports of advanced semiconductors and related equipment to China. Meanwhile, China has been expanding its own regulatory stance since 2023, adding strategic materials such as gallium and graphite to its list of controlled exports.

Source:
JETRO, “U.S. Department of Commerce Announces New Export Controls on China, Centered on Semiconductor Manufacturing Equipment”
JETRO, “Ministry of Commerce Announces Export Controls on Certain Graphite Items Effective December 1”

These measures have a significant impact on companies’ overseas strategies, and dependence on specific countries poses a risk to stable business operations.

Diversification of supply chains

The risks of concentrating production in a single country or region was brought into stark focus through US-China trade tensions, the conflict in Ukraine, and the COVID-19 pandemic.

In 2021, the United States conducted a supply chain review of critical items and identified excessive dependence on China as a vulnerability. The EU has similarly moved to diversify its procurement sources.

In response to these developments, companies are moving away from over-concentration in China and are instead pursuing practical diversification strategies through China+1 approaches and multi-site production.

Source:The White House “BUILDING RESILIENT SUPPLY CHAINS,REVITALIZING AMERICAN MANUFACTURING, AND FOSTERING BROAD-BASED GROWTH”

A Priority Shift from Cost-First Thinking to Supply Stability and Risk Resilience

Against the backdrop of heightened geopolitical risk, procurement strategies in manufacturing are shifting away from a cost-first approach toward a greater emphasis on stability of supply, risk resilience, and business continuity.

Japan itself is dependent on China for imports of critical materials, making diversification of import sources an urgent priority. The Ministry of Economy, Trade and Industry has also indicated the need to build supply chains that do not depend on any single country, and is providing subsidies to support the diversification of procurement sources.

In today’s unstable international environment, there is growing pressure to transition to a procurement strategy that accounts not only for price, but also for stability of supply and geographic risk.

Source:  JETRO, “Part II, Chapter 1: Resilient Global Value Chains Reflecting Shared Values”

The Impact of US-China Trade Tensions on Japanese Manufacturing

US-China trade tensions are also affecting Japanese manufacturing in the following ways.

• ・The risk of over-reliance on China
• ・Growing need for domestic production reshoring and production diversification

The Risk of Over-Reliance on China

A supply architecture that relies on China for procurement and production carries an inherent structural vulnerability.

During the COVID-19 pandemic, overseas factory shutdowns and logistics disruptions caused delays in parts procurement, and there were cases in which companies without domestic production bases were forced to halt production entirely.

In addition, China’s tightening of export controls on strategic materials has intensified in recent years, raising concerns that supply may be subject to policy decisions beyond any company’s control.

While concentration in China may be rational from a cost-first perspective, it carries the risk of supply disruption, and lacks long-term stability.

Growing Need for Domestic Production Reshoring and Production Diversification

In the wake of supply insecurity caused by US-China trade tensions and the pandemic, the need for domestic production reshoring and production diversification has increased.

The Japanese government incorporated subsidies into its fiscal year 2020 supplementary budget to encourage domestic investment and support domestic production of critical materials. In addition, subsidies have been provided to diversify supply chains and distribute production across multiple locations.

The combination of reshoring and diversification — avoiding dependence on a single country — is being recognized as a practical and realistic choice from the perspective of economic security.

Source: Ministry of Economy, Trade and Industry, “Overview of Projects Under the Third Supplementary Budget for Fiscal Year 2020”

Japanese Manufacturing Capabilities Are Being Recognized Again, Amid US-China Trade Tensions

With US-China trade tensions making the reshoring of manufacturing increasingly attractive, Japanese companies are able to achieve substantial benefits from this strategy through the following strengths:

• ・The ability to avoid supply chain disruptions caused by conflict and other factors
• ・Operational capability that enables stable production
• ・A technological foundation capable of handling advanced technologies and high-complexity processes

The following sections explain each of these advantages.

The Ability to Avoid Supply Chain Disruptions Caused by Conflict and Other Factors

Establishing production bases within Japan is being recognized anew for its ability to avoid supply chain disruptions caused by conflict, trade tensions, or other factors.

During the COVID-19 pandemic, export and import restrictions and logistics stoppages occurred across multiple countries, and companies with high dependence on overseas production facilities were severely affected by the breakdown of well-established logistics networks.

Based on this experience, maintaining domestic production infrastructure has come to be regarded as important from the standpoint of mitigating geopolitical risk.

This is true also in situations such as the current US-China trade tensions, where tariffs or import/export bans are imposed or changed suddenly, domestic facilities are less susceptible, enabling stable supply and production.

Operational Capability That Enables Stable Production

Many Japanese factories have a deeply embedded shop-floor culture centered on kaizen and in-process quality assurance.

For example, through QC circle activities and the application of statistical quality control (SQC), there are systems in place to capture early signs of defects through data and implement improvements within the process.

The integrated system of people and processes that is embedded in Japanese factories gives them the resilience to execute “operations that are difficult to stop.”

A Technological Foundation Capable of Handling Advanced Technologies and High-Complexity Processes

Japanese factories possess a technological foundation capable of  sustaining advanced technologies and high-complexity processes over the long term across many fields.

In fields such as semiconductor materials, precision machining, and optical and electronic components, Japan has established the infrastructure to carry complex processes through to completion domestically, at mass production scale and with stable supply.

A defining characteristic of Japan’s manufacturing prowess is that instead of being entirely dependent on advanced equipment, it is also supported by expertise accumulated on the shop floor. The technological framework that enables integrated management of entire processes supports a stable supply of high-value-added products.

Summary | Japanese Factories Are Being Recognized for Their High Capabilities Again in the Wake of US-China Trade Tensions

As a result of US-China trade tensions, tariffs and export controls have become a persistent risk for the manufacturing industry.

As a result, procurement and production strategies that prioritize cost above all else are being reconsidered, and a global shift toward stability of supply and risk resilience is underway.

In this environment, Japanese factories, with their supply chain stability, strong shop-floor capability, and technological foundation for high-complexity processes, are gaining renewed recognition as production bases that support long-term business continuity.

The next article will examine the current state of Japanese manufacturing and the changes taking place in Japanese factories in response to global trends.