With Japan having failed to win an exemption from U.S. tariffs on steel and aluminum, concerns are growing that U.S. President Donald Trump's administration will target the Japanese auto sector next.
The Trump administration Wednesday introduced 25% tariffs on all steel and aluminum imported into the United States in a bid to strengthen U.S. manufacturers.
Trade minister Yoji Muto recently visited the United States to have talks with his counterparts, during which he asked for Japan to be exempted from the tariffs — but the efforts did not bear fruit.
“It is regrettable that the tariffs took effect without Japan being excluded,” Chief Cabinet Secretary Yoshimasa Hayashi said on Wednesday.
Hayashi did not mention the possibility of retaliatory measures, saying only that Japan will maintain close communications with the U.S.
Trump has made tariffs a cornerstone of his new administration. He is using or threatening to use them to address a wide range of issues, from illegal immigration to trade imbalances.
Some analysts and industry insiders said the economic impact of the steel and aluminum tariffs is expected to be limited, since steel and aluminum accounted for just 1.4% and 0.1%, respectively, of the value of Japan's overall exports to the United States last year.
Masashi Terahata, vice president of JFE Holdings, which owns JFE Steel, said the direct impact of the steel and aluminum tariffs is minimal.
However, policymakers and business leaders are increasingly concerned that the Trump administration will target other industries, including the auto sector, which is deeply connected to the Japanese economy.
Trump is expected to announce new reciprocal tariffs next month while also mulling introducing auto tariffs. The reciprocal tariffs are designed to counter nontariff barriers, such as value-added taxes and currency rates.
According to Muto, he did not secure any promise for Japan's exemption from auto tariffs.
On Wednesday, when asked whether he is considering tariffs on European cars, Trump said "absolutely," pointing out that along with European cars, the U.S. is importing a "very big" amount of Japanese cars while other countries are not really buying American cars.
“The auto tariffs would bring the largest impact,” a report by Mizuho Research & Technologies released on March 5 said.
Assuming the country's auto exports to the United States plunge by 40% due to a 25% tariff, the report estimates such a move will inflict ¥1.8 trillion ($12.2 billion) in damage and push down Japan’s nominal gross domestic product by 0.33%.
"Automobiles require numerous parts for their assembly, so they generate a significant domestic production ripple effect on a wide range of sectors, such as transportation equipment, steel, electrical machinery, non-ferrous metals, metal products, and information and communications technology," the report said.
JFE Holdings' Terahata said that auto tariffs could be problematic depending on how they affect automakers’ production.
“If auto tariffs of about 25% are introduced, there’s no doubt that the damage would be significant for some time,” Masakazu Tokura, the chairman of Keidanren, which is Japan’s biggest business lobbying group.
Japan is also closely watching developments surrounding Trump’s move to impose 25% tariffs on cars from Mexico and Canada. Last week, the U.S. president put a one-month pause on these after the heads of General Motors, Ford Motor and Stellantis directly requested that he reconsider.
About 20% of the vehicles sold in the United States by Japanese automakers are imported from Canada and Mexico, according to a report released on Monday by the Mitsubishi Research Institute.
Of Japanese branded cars sold in the United States, around 60% are manufactured within the country, about the same ratio as other non-U.S. carmakers, so the effect will not be too significant, the think tank said.
Still, it notes that each automaker has a different supply chain network, so the impact might be heavier on some than others.
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