Japan concerns over anticipated U.S. auto tariffs; expects insulation through production facilities in US

Automobile industry has been a key pillar of Japan’s manufacturing sector and auto exports contribute a large chunk of Japanese export revenue. Exports to the United States accounting for a significant share of the total auto export by Japan. Like all other auto exporters to the US, Japan is also facing a threat when US is contemplating a 25 per cent tariff on auto and auto parts import.

Source: Trade Data

The White House is considering auto tariffs in its efforts to reduce the overall trade deficit and encourage the U.S. domestic auto sector. The U.S. trade deficit with Japan totalled US$72 billion in 2017, the third largest U.S. trading partner after China and Mexico. The $54 billion trade deficit in car and car parts accounts for 75% of that overall deficit. Unlike the earlier steel and aluminium tariffs aiming at a broader audience, these new protectionist measures are targeted at a key manufacturing sector.

Japan's automotive sector is highly dependent on the U.S. market and a tariff on automobile import will have a strong impact on Japan’s export economy, and the country may reconsider its resistance to a bilateral trade deal.

Japan's steel and aluminium industries were also affected by the imposed tariffs that the United States slapped on its foreign competitors. Since steel and aluminium export only 4 per cent of the total Japanese goods exports, they did not affect its economy significantly and the country did not negotiate on it. However, as for auto export is concerned, the U.S. market is the most important for them and the country is not expected to consider the auto tariffs the same way if Trump goes ahead with the same. 

But unlike other auto-exporting countries, Japan has widespread manufacturing facilities all over the continental United States. So, it is comparatively in advantageous position to face the damages brought about by the auto tariffs. Japan is also exploring newer markets for auto exports and Tokyo has recently succeeded in breaking down trade barriers to the EU, Chinese and CPTPP markets.

During the most recent dialogue between the U.S. and Japanese trade officials, Japan urged for U.S. return to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) while the US continued to push Japan for bilateral talks.