Top Car Parts Supplier Rethinks China Dependence as Trade War Bites

As the US-China trade war expands into the auto, steel, and rare earths sectors, few companies are feeling the pressure more than top Japanese car parts supplier Daido Steel.

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TOKYO —

The supplier to Honda Motor and other major marques is facing a trio of headwinds: a 50 percent tariff on US imports of steel, a 25 percent duty on foreign-made cars and a levy on parts, and China's tightening of exports of rare earths — minerals critical to making magnets for car motors.

"They've started putting up walls," chief executive officer Tetsuya Shimizu said. "This will have a massive impact on the stability of the global economy."

It is also having major implications for the sprawling network of specialty manufacturers that are critical to the global automotive industry and now find themselves stuck between feuding superpowers.

For Daido Steel, the trade war has meant renewing a push to build rare earths supply routes outside China, which accounts for almost 70 percent of mined material and about 90 percent of global refining of the metals.

Some new routes are already starting to form, mainly from Australia, and Mr. Shimizu said there is potential in the US, Canada, and Brazil. But progress has been slow due to high costs and low supply, he said, underscoring the immense challenge facing the world's efforts to wean off its dependence on China.