When Japan’s JFE announced last year it would build a factory in Mexico to make steel for cars, it didn’t envisage the next U.S. president coming in and renegotiating Nafta. Nor did it expect that its key customers -- companies like Toyota Motor Corp. -- would come under attack for setting up plants on the wrong side of the border.
JFE is one of a thousand or so Japanese companies with operations in Mexico. They range from household names like Toyota, to the myriad of lesser-known firms that comprise the global supply chain, and to Japanese banks with operations in the country.
So while Donald Trump’s January tweet on Toyota -- "No WAY! Build plant in U.S. or pay big border tax" -- put the automaker in the spotlight, the fallout for corporate Japan could be much wider.
Nissan Motor Co., Honda Motor Co. and Mazda Motor Corp. also have factories in Mexico, as do Japanese parts suppliers such as Denso Corp. and Takata Corp. Aisin Seiki Co. is building its third plant in the country, aiming to start production in January 2018 of sunroofs and door parts to supply Toyota and other automakers including General Motors Co.
A spokesman for Aisin Seiki said it isn’t looking to change its plans right now, while it will keep an eye on any changes to the North American Free Trade Agreement.
JFE, which will build its factory in a joint venture with North Carolina-based Nucor Corp., aims to start producing steel in 2019. It plans to proceed for now and aims to contribute to the automotive industry in North America, not just Mexico, according to a spokesman.
And JFE isn’t the only Japanese steelmaker in Mexico. Nippon Steel & Sumitomo Metal Corp. opened a factory to make automotive steel in 2013, in a joint venture with Ternium SA.
"This is a really knotty problem," said Koji Endo, an automotive analyst at SBI Securities in Tokyo. If carmakers such as Nissan can’t sell as many vehicles into the U.S., they will look more to Mexico itself, South America and Europe, but there are problems with this, including different specifications, he said.
Takeshi Kunibe, the chairman of the Japanese Bankers Association, who is also the president of Sumitomo Mitsui Financial Group’s main lending unit, said last month that Japanese companies in Mexico are concerned about the situation.
Sumitomo Mitsui has set up a team in the U.S. to explain to its customers what policies the Trump administration might pursue, and how trade relations with Mexico and other nations may be affected, Kunibe said.
Sumitomo Mitsui’s biggest Japanese rivals, Mitsubishi UFJ Financial Group and Mizuho Financial Group, have both invested in Mexico to service the growing numbers of Japanese corporations there.
Meanwhile, Toyota, which also has a very large footprint inside the U.S., has announced it will invest $600 million and add 400 jobs at an assembly plant in Indiana.
As large as Japan’s presence is in Mexico, it is dwarfed by the nation’s investment in the U.S.. The U.S. is the No. 1 destination for Japanese direct foreign investment, accounting for about a third of the total, versus less than 1 percent for Mexico at the end of 2015.
All this makes for an interesting discussion when Prime Minister Shinzo Abe meets President Trump in Washington on Feb. 10.