Island Dispute Disrupts China-Japan Trade

Japanese auto manufacturers have scaled back auto production on the Chinese mainland amidst increasingly tense demonstrations over the disputed Senkaku islands, controlled by Tokyo but claimed by both China and Japan. The Senkakus, called Diaoyu by Beijing, are located near Taiwan at the southern tip of the chain running southwest from Japan’s main islands.

Japanese firms are understandably nervous about the protests because of their high profile and capital investment in China; trade between the two countries was estimated at $343 billion in 2011. Japanese firms in diverse industries, ranging from electronics to chemicals to supermarkets, are curtailing operations and taking precautions against the continuing threat of riots.

The next chapter in the saga may be a fishing expedition. Literally. China has reportedly launched a fleet of 1,000 fishing boats towards the disputed territories. Chinese fishing fleets often have semi-official status and have been known to clash with Japan’s Coast Guard.

It remains to be seen whether the Chinese government, conscious of the importance of trade between the twocountries, will act to defuse the situation. To date nationalist impulses appear to be carrying the day.