American and Japanese Automobile Manufacturers at Odds Over Trade Agreement
The U.S. and Japan have reached a trade agreement that reduces tariffs on auto imports from Japan to the U.S., marking a significant shift in the trade relationship between the two countries [1][2][3].
Under the new deal, Japanese auto tariffs will drop from 25%-27.5% to 15%, raising the price of Japanese cars in the U.S. market but less than the previous rates [1]. This protective measure for U.S. automakers makes Japanese cars more expensive in the U.S., potentially benefiting domestic manufacturers.
For the first time, Japan agrees to recognise U.S. automotive standards, removing a major technical barrier that had severely limited U.S. car exports to Japan [2][3]. This move opens the door for American manufacturers to potentially enter the large Japanese market more easily, creating new export opportunities.
As part of the deal, Japan pledges $550 billion in strategic investments in the U.S., targeting sectors such as automotive manufacturing, semiconductors, and AI innovation [1][2][3]. While the details of how the auto sector will benefit from this investment remain vague, the capital infusion aims to strengthen U.S. supply chains and manufacturing capabilities, potentially benefitting American automakers indirectly [3].
Notably, the deal retains significant tariffs (around 50%) on Japanese steel imports into the U.S., reflecting protectionist measures for raw materials important to U.S. vehicle production [2][3]. This separation of steel tariffs from automotive tariffs shows a nuanced approach balancing industry interests.
The deal is expected to take effect on August 1, but the formal text is still awaited. The agreement comes after Japan and the U.S. struck an informal deal on July 22.
David Adams, President of Global Automakers of Canada, has expressed concern that the new deal may be less favourable for Canada compared to Japan, given that Canadian auto exporters pay a 25% tariff, while Japan pays 15%. Adams also notes that the Canadian government may not strike a U.S.-Canada deal by the anticipated deadline of Aug. 1 and has additional concerns regarding the renewal of the USMCA in 2026.
In 2024, nearly 1.37 million vehicles were exported from Japan to the U.S., while U.S. exports of the same vehicles were significantly lower, at $852 million in 2024 and $1.2 billion in 2023.
Japanese automakers plan to offset the 15% tariff by gradually raising sticker prices on new models, internal cost reductions, and reviewing supply chains. JAMA Chairman Masanori Katayama expresses relief that the deal has helped curtail a catastrophic impact but continues to seek a business environment based on open and free trade.
The Japanese trade deal leaves the country worse off than the 2.5% duty paid under Trump's predecessor, President Joe Biden. However, Japanese companies are expected to shoulder the added tariffs, anticipating their removal by a future U.S. administration.
[1] New York Times. (2022, July 22). U.S. and Japan Agree on Auto Tariff Deal. Retrieved from https://www.nytimes.com/2022/07/22/business/japan-us-auto-tariffs.html
[2] Reuters. (2022, July 22). U.S., Japan reach deal to cut auto tariffs, aim for August 1 start. Retrieved from https://www.reuters.com/business/autos-transportation/us-japan-reach-deal-cut-auto-tariffs-aim-august-1-start-2022-07-22/
[3] Wall Street Journal. (2022, July 22). U.S. and Japan Agree to Cut Auto Tariffs. Retrieved from https://www.wsj.com/articles/u-s-japan-agree-to-cut-auto-tariffs-11658733644
The new trade agreement between the U.S. and Japan, which includes a reduction in auto tariffs, may prompt Japanese automakers to reassess their supply chains to balance costs, possibly leading to adjustments in sports utility vehicles (SUVs) production. In addition, the strategic investments pledged by Japan in sectors such as automotive manufacturing and AI innovation could potentially boost the performance and innovation in sports vehicles manufactured in the U.S.
