Japan’s exports fell in September for the first time since 2016 as shipments to the United States and China declined, likely impeding third-quarter economic growth and adding to concerns about the broadening impact of an escalating Sino-U.S. trade war. The data comes days after a Reuters poll showed a third of Japanese companies – not just exporters – have been affected by the trade conflict between the world’s two biggest economies, and more than half worried about its fallout on their business.

Japanese policymakers also remain wary about the overall economic impact of the international trade frictions. A string of natural disasters that struck Japan has added to the strain on factories, disrupting output and physical distribution. The U.S.-Sino tariff row has yet to materially hurt trade activity, but a slowdown in external demand has bolstered views that Japan’s economy, the world’s third largest, likely slowed sharply in the July-September quarter.
“The economy probably grew only slightly in the third quarter, led by firm consumption and brisk capex.

Trump threat

Tokyo and Washington last month agreed to start trade talks in an arrangement that, for now, avoids the worst-case scenario of an imminent 25 percent tariff on cars. Trump has made clear he is unhappy with Japan’s $69 billion trade surplus with the United States – nearly two-thirds of it from auto exports – and wants a two-way agreement to address it.

Tokyo pushed back on a straight bilateral Free Trade Agreement (FTA) that Washington had sought, fearing it could put Japan under pressure to open politically sensitive sectors such as agriculture. Thursday’s trade data showed exports to China, Japan’s biggest trading partner, fell 1.7 percent in the year to September, the first decline in seven months, dragged down by semiconductor production equipment.

Shipments to Asia, which account for more than half of Japan’s overall exports, rose 0.9 percent. Overall imports rose 7.0 percent in the year to September, versus the median estimate for a 13.7 percent annual increase.

The trade balance was surplus of 139.6 billion yen, compared with the median estimate for a shortfall of 50.0 billion yen. “External demand has likely put a drag on Japan’s economy,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

“Going forward, exports may recover from supply constraints, but effects from the slowdown in emerging markets, and the U.S.-China trade war remain a source of concern.”