Canada's retaliation for Trump tariffs is biggest concern, says Japan's Komatsu

By Kantaro Komiya and Maki Shiraki

TOKYO (Reuters) - The top business risk of the Trump presidency for heavy-duty equipment maker Komatsu is not the tariffs he has threatened, but Canada's potential retaliatory duties on American-made mining machines, the head of the Japanese company said.

The view of a global manufacturer flags the possible knock-on impact of Trump's pledge for tariffs on imports from Canada, China and Mexico when he takes office, especially if the targets decide to retaliate with trade barriers on their own.

Komatsu, the world's second-largest construction machinery company after Caterpillar, earns more than a quarter of its sales from North America and employs about 8,000 staff in the United States.

The risk of retaliatory tariffs by Canada, the largest export destination for the mining equipment Komatsu makes in the United States, is "my biggest concern" when Trump's second term begins next month, Chief Executive Hiroyuki Ogawa told Reuters.

"We are an exporter in America," Ogawa said, adding that Komatsu's U.S. exports have surpassed imports by about $1 billion a year since its 2017 acquisition of Milwaukee-based mining machinery maker Joy Global.

"We're basing our business on free trade," Ogawa said. "A tariff war could land a one-two punch on us."

    The impact of the threatened tariffs on U.S.-bound components such as sheet metal from China is "not very big" and could be mitigated if necessary by shifting supply sources elsewhere, such as from Southeast Asia, within two to three months, he added.

Apart from trade policies, Trump's vow to maximise fossil fuel use would serve as a positive counterbalance to shrinking demand for heavy machinery in the United States due to oversupply in the rental market, Ogawa said.

Komatsu will keep investing in the United States regardless of who the president is, Ogawa said, vowing to spend about $80 million for a mining equipment service centre in Arizona and $65 million for ABS, a Detroit-based battery maker bought last year.

Ogawa expects a "challenging" business landscape in the next fiscal year starting in April, with global demand likely to stay flat. He cited concerns about rising fixed costs and fewer chances for price hikes as supply chains return to normal.

Komatsu forecasts operating profit of 573 billion yen ($3.65 billion) in the current fiscal year to March 2025, down 5.6% on the year.

($1 = 156.8800 yen)

(Reporting by Kantaro Komiya and Maki Shiraki; Editing by Clarence Fernandez)