Under the direction of President Donald Trump, the United States Commerce Department is considering plans to apply new tariffs on imported vehicles under the provisions of the same national security law employed by the U.S. to levy tariffs on aluminum and steel earlier this year.
The Trump administration has launched a national security investigation under Section 232 of the Trade Expansion Act of 1962 to scrutinize whether vehicle and parts imports are threatening the industry’s health and ability to research and develop new, advanced technologies, the Commerce Department said on Wednesday.
The development is the latest tariff threat from the Trump administration, whose frenetic actions on trade have given market watchers whiplash throughout 2018 as trade tensions get ratcheted up only to subsequently ease when faced with resistance from trading partners.
While the vehicle tariffs may never materialize, the latest development may test the thinning patience of Japan, a country whose economic and political fate is tightly entwined with that of its auto industry.
“The stakes are higher (than previous threats) for Japan, because the value of Japanese exports affected will be much larger and global supply chains will be compromised,” said Mireya Solis, a senior fellow at the Brookings Institution in Washington.
“Once again, it is American allies — like Japan — who will suffer the brunt of the ‘national security’ tariffs,” added Solis.
The Japanese government has maintained a relatively subdued position in respect to trade disputes with its largest trading partner, but this strategy appeared to change last week when the Foreign Ministry announced it would consider taking retaliatory measures for the U.S. tariffs on steel and aluminium.
Solis posited that the latest U.S. salvo could drive Japan to conjure up a firmer position going forward, and that policymakers could draw up a list of retaliatory measures to “send a stronger message.”
The government sent mixed signals on Thursday, with Chief Cabinet Secretary Yoshihide Suga offering a calculated response during a news conference, stating that, “Any trade measures should be consistent with the World Trade Organization Treaty.”
Trade minister Hiroshige Seko, however, was less measured.
“Such restrictive measures would plunge the world market into confusion,” said Seko on Thursday, “It is extremely regrettable.”
To some extent frictions over the automotive industry remain the same as they were decades prior, with the U.S. pointing to Japanese automakers as the culprit behind persistent trade deficits while policymakers in Japan endeavor to minimize damage to its national business behemoths.
“One potential worst case would be a 20 or 30 percent reduction in car exports to the U.S. which could possibly push down Japanese GDP by 0.5 percent, a nonnegligible number,” said Hiromichi Shirakawa, Chief Economist at Credit Suisse in Tokyo.
According to the U.S. Census Bureau, Japanese vehicle imports were the highest on record in March 2018 at $31.3 billion (about ¥3.412 trillion), while the overall trade surplus with the U.S. in 2017 was $69 billion.
However, in Trump’s view, this dependence on U.S. trade is the driver behind the large trade imbalance between the United States and Japan.
“The majority of the trade imbalance between the United States and Japan is in autos,” said Shirokawa at Credit Suisse.
Information from Reuters added.