The economic toll of Japan’s earthquake disaster may reach U.S. shores in the coming weeks.
Overall, the impact on U.S. – Japan trade is expected to be modest but certain industries will feel the effects acutely. Global supply chains rely on Japan as a supplier of parts and a finisher of many products. American companies rely on Japan for essential components like electronic parts, batteries and transmissions for electrical vehicles.
“The financial and economic effects…are spreading through the Japanese economy, the East Asian region, and also may affect businesses and consumers in the United States,” the Congressional Research Service warned in a report.
Analysts expect Japan’s economy to contract and possibly enter a recession in the next quarter, but the rebuilding could actually jumpstart the economy later this year. The Japanese recovery currently hinges on controlling nuclear radiation and restarting the country’s electricity and oil refining capacity. Analysts expect the disaster to reduce global economic growth by half of a percentage point, with half of that concentrated in Japan.
The U.S. has already felt some direct effects of the Japanese disaster. The shutdown of a Hitachi factory north of Tokyo caused a General Motors plant in Louisiana to shut down for a week. Texas Instruments is temporarily closing a Japanese factory until September; the plant accounts for 10 percent of its revenue. Nissan may need to import engines from its Tennessee facility due to a damaged plant in Fukushima. Even American carmakers are not immune to the effects. Ford, for example, relies on Japanese-made memory chips and batteries.
Delta Airlines, Japan’s biggest foreign airline, predicts a $250 million to $400 million hit to profits. Delta is reducing flights through its Tokyo hub by up to 20 percent through May.
In addition, the tsunami caused millions of dollars of damage in Hawaii, California, and Oregon.
The events in Japan also increased instability in U.S and global financial markets. Japanese investors are major private holders of U.S. Treasury securities, which finances U.S. national debt. In the upcoming months, Japanese investors may need to sell holdings to finance Japanese reconstruction, which could cause interest rates on the U.S. debt to rise.
FAST FACT: As a popular destination for Japanese tourists, Hawaii has already seen tours and trips cancelled. Japanese tourists account for 18 percent of Hawaii tourists and contribute $1.9 billion to the state’s economy.
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