Trade War Watch: Japan Gets Vocal Over U.S. Tariff Threats

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While the Japanese government has walked on eggshells when discussing trade issues that are transforming the globe into an angry beehive, the nation’s automakers have been more forthright. However, they’re both getting increasingly vocal as the situation escalates.

As the United States and Japan head into trade discussions scheduled for July, it’s beginning to look like everyone will come out swinging — especially when it comes to the automotive industry. Last month, the White House launched a national security investigation into car and truck imports that could lead to new tariffs on some of Japan’s biggest U.S.-bound exports.

Japanese Finance Minister Taro Aso was uncharacteristically negative toward the current U.S. trade policy during a Group of Seven finance leaders’ gathering held last week. “It’s deeply deplorable,” Aso said. “Inward-looking policies involving one-sided, protectionist measures benefit no country.”

President Donald Trump’s steel and aluminum tariffs were already blow to the island nation. But, as Japan isn’t even close to being the United States’ largest steel supplier, those import duties would have nothing on the potential tariffs on automobiles. Japanese manufacturers build a staggering amount of vehicles inside the United States. According to Reuters, 3.8 million Japanese-branded cars were produced inside the U.S. in 2017. Another 1.7 million were exported from Japan to adequately serve the world’s second largest car market.

On Friday, Japanese automakers association JAMA criticized America’s decision to explore the raising of tariffs on auto exports. “The investigation launched by the United States Department of Commerce to determine the effects on national security of imports of automobiles … will create uncertainty among automobile users in the U.S. and people involved in the motor vehicle industry,” said Akio Toyoda, chairman of JAMA and president of Toyota Motor Corp.

Lobbying groups representing domestic manufacturers, which also import cars from foreign factories, have taken a similar stance. Few in the industry are excited by the prospect of tariffs. Even though the White House is targeting other countries in the hopes of gaining some bargaining leverage, import tariffs would affect them, too.

This is something the president seems aware of. Prior to his inauguration, he expressed anger toward domestic manufacturers that left the United States to set up shop elsewhere. “Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its products back into the U.S. without retribution or consequences, is WRONG!” he said on social media. “There will be a tax on our soon-to-be strong border of 35 percent for these companies wanting to sell their product, cars, A.C. units, etc., back across the border.”

Trump criticized China’s high import duties on automobiles and the way the country forces joint-partnerships on businesses hoping to sell at a meaningful volume. Likewise, both General Motors and Ford have taken some criticism for setting up factories within The People’s Republic. Both wanted access to the region as it morphed into the world’s largest auto market. You could argue that Buick faced death if it didn’t find a place for itself in China.

For what it’s worth, China promised to reduce import tariffs on cars this summer and said it would eventually open up its market by eliminating the need for joint partnerships. However, Ford and GM have the least to gain when that happens, as they’ve already set up shop in that country.

Japan is a different beast. With the possible exception of the Jeep brand, American cars are little more than a novelty there — and it’s not because of tariffs. While the United States imposes a relatively small 2.5-percent import fee on all foreign-built cars (and 25 percent on trucks), Japan has no import duties whatsoever. Japanese consumers hesitate to purchase U.S. built vehicles due to assumption that they are still built to Malaise-era quality specifications and are a little too big to be practical. While the former is incorrect, the stigma remains. American manufacturers have proven hesitant spend the kind of money required to fix the problem.

In addition converting vehicles to right-hand drive, domestic manufacturers would then need to spend a bundle on a marketing push to prove its vehicles are desirable, while investing in a dealer network where they can be purchased. The cost for that would be astronomical for such a small market, especially since the Japanese expect free maintenance. That’s no guarantee for success. General Motors operated about 30 shops in Japan before it pulled out of the country, but it only delivered about 1,000 vehicles in 2016.

[Image: Toyota]