With a 12.5% Tariff, Which Companies Will Suffer? How to Distinguish Between Your Stock Holdings and Your Employer

The United States has imposed new tariffs on 60 countries and regions, including Japan.

When hearing that Japan is subject to 12.5%, it feels as though companies exporting to the U.S. will also see their profits decrease by 12.5%.

However, the tariff rate and the rate of profit decline are not the same.

Are they exporting from Japan, or are they producing in the U.S.? Who pays the tariff, and can that burden be passed on to the sales price?

The impact on a company is determined by these differences.

Not all products will have 12.5% added to them

This tariff does not uniformly add 12.5% to all products exported from Japan to the U.S.

Tax rates and eligibility vary by product and are adjusted to include standard tariff rates. Items already subject to other tariff measures, such as steel and automobiles, are also excluded.

Therefore, the headline 'Japan is 12.5%' alone does not reveal the impact on individual companies.

Even within the same company, the burden varies depending on the product being exported.

The importer on the U.S. side is the first to pay the tariff

The company registered as the importer is the one that pays the tariff to U.S. Customs.

If a U.S. customer is the importer, the customer pays the tariff first. If a U.S. subsidiary of a Japanese company is the importer, it becomes a burden on the corporate group.

However, just because a U.S. customer pays it does not mean there is no impact on the Japanese company.

If the customer demands a price reduction to cover the tariff, reduces order volumes, or changes suppliers to another country or within the U.S., the Japanese company's sales and profits will also decrease.

It is more important to know who ultimately bears the burden than who pays at customs.

Companies with lower profit margins will be hit harder

For example, suppose a Japanese company exports 100 million yen worth of goods to the U.S. and a 12.5 million yen tariff is applied.

If sales are 100 million yen and the cost of goods sold is 80 million yen, the gross profit is 20 million yen.

If the Japanese company bears the entire 12.5 million yen tariff, the gross profit drops to 7.5 million yen.

Even if the tariff rate is 12.5%, gross profit will decrease by 62.5%.

Conversely, if you can pass on 12.5 million yen to the sales price, the decline in profit can be mitigated.

More than the tariff rate, the original profit margin and whether you are in a position to raise prices will determine business performance.

Companies that cannot set their own prices will be hit the hardest.

It is not simply companies with high US sales that will bear a heavier tariff burden.

It is companies where the following conditions overlap.

・Products for the US are produced in Japan
・Profit margins are low
・Sales are concentrated among a few US customers
・Prices are difficult to change due to long-term contracts
・They handle products that other companies can also manufacture
・It is difficult to refuse requests for price cuts from customers

Particularly difficult are replaceable parts and general-purpose products.

If customers switch to products within the US or from other countries because you raised prices, you will lose not only the tariff but the business itself.

On the other hand, companies with proprietary technology that cannot be easily replaced by other products can reflect the tariff in their prices.

What tariffs expose is not the scale of product sales, but a company's price negotiation power.

Even with high US sales, it is a different story if production is local.

Companies selling in the US and companies exporting from Japan to the US are not the same.

If a company manufactures products in factories within the US and also procures parts locally, the impact of tariffs will be smaller than for a company that exports finished goods from Japan.

However, even if they assemble in the US, if major parts are sent from Japan, those parts will be subject to tariffs.

When checking your stock holdings, you need to verify not only the US sales ratio but also the production location and the source of parts procurement.

When researching your stock holdings, narrow it down to these four items.

In financial statements and securities reports, focus on the following four points.

1. Where are the products for the US being made?

Check whether they are being exported from Japan or produced in the US.

The production bases listed on a company's official website or the regional production structure in its integrated report can provide clues.

2. What is the profit margin?

For companies with low operating profit margins, price cuts or additional costs directly erode profits.

Even if sales are high, if the profit margin is low, there is no room to absorb tariffs.

3. Have they been able to raise prices in the past?

Companies that have been able to raise sales prices in response to rising raw material and logistics costs can also negotiate with customers regarding tariffs.

Companies that have absorbed costs themselves every time they increased will see their profits eroded by tariffs as well.

4. Is the company explaining the tariffs?

Look for terms like "tariffs," "price pass-through," "US production," and "local procurement" in financial results presentation materials and Q&A sessions.

Companies that explain the impact and countermeasures are already taking action. If there is no explanation at all, you need to be careful about whether earnings forecasts will be revised in the next financial results.

You cannot judge just by a drop in stock price

When news about tariffs breaks, automotive, machinery, and electronic component stocks are often sold off together as export-related stocks.

However, even within the same industry, production locations, profit margins, and pricing power differ.

You cannot treat a company that exports low-margin products from Japan and a company that produces unique products in the US as the same type of exporter.

Even if the stock price drops immediately after the news, there are companies for which the actual burden is small.

Conversely, even if the stock price does not move much, companies with low profit margins that cannot raise prices will see the impact of tariffs appear in their financial results.

It matters even if your employer does not export

Small and medium-sized enterprises tend to think, "It doesn't concern us because we don't export to the US."

However, if the finished products that use the parts or equipment your company supplies are exported to the US, the impact of the tariffs will reach domestic business partners as well.

If finished product manufacturers reduce production for the US, orders to domestic parts manufacturers and processing companies will also decrease.

To recover the cost of tariffs, companies may demand price cuts from their suppliers. If they increase production in the U.S. and switch to local procurement for parts, work within Japan may disappear.

On the other hand, some companies may see an increase in orders for new production equipment and automation machinery as they expand their U.S. factories.

Tariffs do not mean that domestic work will decrease across the board. As production locations shift, some companies will lose orders while others will gain them.

Changes appear on the front lines before they show up in financial results

The impact on your workplace will appear on the front lines before it is reflected in earnings announcements.

・Postponement of projects destined for the U.S.
・Requests for price cuts from business partners
・Reductions in informal orders or production plans
・Postponement of domestic capital investment
・New inquiries for U.S. factory equipment
・Specification changes to align with local procurement

When you see these movements, trace whether your business partners have the U.S. market at the end of their supply chain.

By knowing where your company's products are ultimately sold, you can understand their relationship with tariffs.

Tariffs indicate a company's pricing power

The 12.5% tariff figure alone does not determine which companies will struggle.

The difference lies in whether the company can pass the tariff costs onto their prices.

Does the company have products for which customers will accept price increases? Or must they bear the cost themselves to protect their business relationships?

The companies most affected by tariffs are not necessarily those selling in the U.S.

They are the companies that cannot set their own prices and must pay the tariffs out of their profits.

For your stock holdings, check production locations, profit margins, and track records of price increases.

For your workplace, learn the final destination of your company's products and the production plans of your business partners.

More than the tariff rate, it is about who determines the price in the transaction.

That is what determines the impact on the company.