Anyone who was around in the 1980s will remember the turmoil caused by the U.S.-Japan trade imbalance, especially in the automotive field. In order to maintain their growing position in the American market, Japanese car manufacturers knew they would have to move some of their operations to the United States. So they did, and they’ve never looked back.
The turmoil eventually subsided. Americans have come to accept the dominance of Japanese automobiles. But now there’s U.S. President Donald Trump and, as many have pointed out, he seems to think it’s still 1986 and that Japan unfairly protects its own market from imports — otherwise why aren’t any American cars sold in Japan? It’s not an opinion that’s widely circulated anymore, though it actually isn’t really off the mark.
The standard Japanese media reply to Trump’s accusation is that there are no tariffs on American cars sold in Japan, a position that freelance journalist Tetsuo Jimbo refers to as the “Japan innocence theory.” More to the point, American carmakers have demonstrated they can’t be bothered to design vehicles in accordance with Japanese needs.
During a recent interview on videonews.com, the web channel Jimbo hosts, motor journalist Mitsuhiro Kunisawa told him that the media is simply following the government’s lead, but if they were doing their jobs they would explain the interrelationship between the automobile markets in Japan and the U.S. He thinks that Japan is protectionist, and while the foreign media takes that notion for granted, the Japanese public doesn’t believe it; which isn’t to say the situation as it stands is inherently unfair, only that the world is a complicated place.
“No one can complain about lack of fairness in (automobile) trade,” Kunisawa says. Japan suffered those accusations a long time ago, “but now it knows how to play the game perfectly.” Japan won the car wars. What’s missing from this triumphal story is that the vehicles Japan sells in the U.S. aren’t really Japanese anymore. For all intents and purposes, they’re American, since most are manufactured and sold in North America by subsidiaries of Japanese companies. It’s just that some of the profits come back to Japan.
“Everyone in Japan thinks we make these cars here and then send them overseas,” Kunisawa says. “But that’s not the case.”
In that regard, Japan has done what the U.S. demanded it do 30 years ago — or, at least, partly. The other part of the demand, which was to make Japanese people somehow buy American cars, has mostly been ignored because, as Kunisawa points out, “There has never been any serious intention to sell American cars in Japan.”
The contours of this trade dynamic have been shaped by national preferences over the years. Up until the mid-1970s, American cars were valued in Japan and better made than Japanese cars. Only well-off Japanese could buy American cars and because there was no realistic competition they were imported without much alteration. They were large and had big engines. Japanese automobiles were made to appeal to everyone else. They were small and cheap, and the engine displacement was never more than 2 liters.
One way the government protected domestic automakers was to peg car taxes to engine size and claim it was an emissions standard. Larger engines meant more emissions and higher taxes. As time went on, Japanese makers started selling a lot of small cars in the United States. Domestic consumers, including wealthier Japanese, also ignored American imports, and American makers complained about the taxes. Their most protectionist aspect, according to the U.S., was the very low levy on Japanese minicars (kei jidōsha), whose engine displacement is only 660 cubic centimeters, a size American companies don’t make.
Several years ago, the government finally raised the tax on minicars in order to placate foreign car manufacturers, but it made no difference. Japanese companies have become so good at manufacturing compact cars for the American market that Detroit stopped trying to compete. In their hearts, the American manufacturers want to sell large cars and pickup trucks, since those provide higher profit margins and, as long as they can afford the gasoline, Americans prefer them. The top three selling models in America are pickups. Though Japanese automakers do make pickups for the U.S. market, sales are much lower than they are for American models.
With their larger bodies, pickups don’t make sense in cramped Japan, but in any case the engine displacement would render them more expensive than a high-end Mercedes. The annual tax on a vehicle with a 4-liter engine — normal for an American pickup — is ¥76,500. Japan is the only developed country in the world with such a tax, so over a 10-year period it would add up to the equivalent of a 12 percent import tariff. As for luxury cars, Japanese drivers prefer German vehicles, which, Kunisawa insists, are of better quality than either American or Japanese equivalents.
American makers know that they themselves doesn’t make superior small cars for their own consumers, so what’s the point in trying to make them for such a resistant market like Japan’s? Just to be safe, however, the Japanese government maintains inspection rules that make it difficult for American cars to enter the country despite the fact that even the Japanese media concedes that American safety and environmental standards are stricter than Japan’s. In addition, the car tax is the same for used cars, so people who normally buy used cars would be put off by the high tax on American vehicles, which means they have no trade-in value.
Trump has said he prefers bilateral trade deals to multilateral free trade agreements like TPP, and in such a situation Kunisawa thinks the U.S. would do better to concentrate on getting rid of Japan’s engine-based car tax, but that still wouldn’t solve the image problem. As Kunisawa sees it, “There’s a premise that American cars are not sellable in Japan,” and no amount of negotiation is going to turn that opinion around.
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