Japan’s ‘China exit’ subsidy helps Boeing supplier leave the US

Japan’s ‘China exit’ subsidy helps Boeing supplier leave the US

The coronavirus pandemic could easily have spelled the end for AeroEdge. For five years, the Japanese manufacturer in rural Tochigi Prefecture has mainly supplied one client, French engine maker Safran, and produced only one product — turbine blades for two aircraft made by Airbus and Boeing.

The disruption and cancelations that hit the airline industry cascaded to small suppliers like AeroEdge, which employs 100 workers and whose orders had already plummeted due to last year’s regulatory grounding of the Boeing 737 Max.

But in March, AeroEdge figured out how to complete the first and most expensive part of its manufacturing process — trimming titanium aluminide ingots — in house and at a lower cost than the American company it formerly outsourced the work to. This breakthrough allowed AeroEdge to qualify for the first round of government subsidies to repatriate manufacturing operations to Japan.

Widely known as the “China exit” subsidy, the 220 billion yen ($2 billion) scheme — officially billed a means to “stabilize and diversify” Japanese production bases — has been panned as a protectionist response to the coronavirus, which momentarily interrupted supply chains in Asia as China, the world’s factory, shut down. But companies wary of rising labor costs in China and geopolitical risks had already begun reorganizing production prior to the pandemic.