Japan’s hopes for an exemption from US tariffs on imported autos have been dashed.
On Friday, US Commerce Secretary Howard Lutnick told Fox Business that, “If you’re going to tariff cars from anywhere, it’s got to be tariffing cars from everywhere. That would be fair, right? Don’t make it so that Japan has an unfair advantage over Korea or Germany or anywhere.”
After Prime Minister Shigeru Ishiba’s apparently successful meeting with President Donald Trump at the White House in early February, the Japanese had been reminding themselves of the “promise” that Trump made to former Prime Minister Shinzo Abe that he would not put additional tariffs on Japanese autos and auto parts.
The Nikkei, Japan’s leading business daily, quoted a Ministry of Economy, Trade and Industry spokesperson as saying, “That’s still an important promise for us.”
For now, Trump appears likely to impose a 25% tariff on Japanese autos in early April. That would affect about US $40 billion dollars worth of annual Japanese exports, equivalent to nearly 30% of Japan’s total exports to the US and about two-thirds of its trade surplus with the US.
According to government data, Japanese exports to the US hit 21.3 trillion yen last year (US$142 billion), while imports from the US were 12.5 trillion yen ($83 billion).
Japan’s trade surplus with the US in autos alone is gigantic. In 2024, Japan exported about 1.3 million passenger cars to the US while importing only about 20,000 American cars. Because Japan does not impose a tariff on imported automobiles, the Americans like to blame this disparity on what they call “non-tariff barriers.” These include:
- Unique vehicle standards
- Unnecessarily complex and time-consuming safety inspections
- Japanese government favoritism, including discriminatory financial incentives
- Closed distribution network
But as a long-term resident who has driven hundreds of thousands of kilometers around Japan since the 1980s, the situation looks different to me. I would never buy, or even rent, an American car in Japan. Why?
- Generally speaking, American cars are too large for Japan’s back streets and country roads.
- The steering wheel of most American cars sold in Japan is on the wrong side (Jeep is an exception). Like the English, the Japanese drive on the left side of the road. The steering wheel on Japanese cars is on the right.
- Relatively poor gas mileage.
- Lack of readily available spare parts if a car breaks down.
As for the regulatory and market environment:
- Japan requires an annual vehicle inspection to ensure safety. (Is that a bad idea?)
- Financial incentives for mini-vehicles help reduce fuel consumption, a sound economic and environmental policy.
- American car dealers tend to sell multiple brands, while Japanese automakers have their own dealer networks – a market characteristic to which American automakers have failed to adapt.
- The Japanese find European cars more stylish. The Japanese buy about ten times more European cars than American cars.
That is not to disparage all American cars. Jeep is a popular brand in Japan. White Cadillacs were a Yakuza favorite a long time ago, but we don’t see them now. Hummer appeals to certain macho types.
However, the imported cars most often seen on Japanese roads are from BMW, Mercedes-Benz, Volkswagen and Audi. BMW’s Mini is the best-selling model. Citroen and Volvo also have their fans. The well-heeled set buys Porsche, Ferrari and Lamborghini vehicles.
But the Trump administration is more interested in increasing the number of manufacturing jobs in America than reforming the Japanese auto industry, and tariffs on vehicles imported from Japan, Mexico and Canada should make this easier.
In 2024, Japanese automakers sold about 5.9 million vehicles in the US while producing 3.3 million there, importing about 1.3 million from Japan and sourcing the rest in Mexico and Canada.
Honda, which exports very few vehicles from Japan, is already shifting some production from Mexico and Canada to the US. Honda assembles about 40% of the vehicles it sells in the US in Mexico and Canada.
The figure for Toyota, which includes exports from Japan, is about 45%. About 70% of the vehicles Mazda sells in the US are shipped from Japan and Mexico. Both Toyota and Mazda have room to increase production in the US. Nissan, which is on the ropes, is reducing production in the US and around the world.
Trump may be using the threat of high tariffs on imported autos as a negotiating ploy, but whatever the final figures turn out to be, the Japanese must come up with a new strategy to keep their domestic auto industry afloat while protecting their investments in Mexico and Canada.
Follow this writer on X: @ScottFo83517667
