Business

Toyota touts free trade in opposition to U.S. auto tariffs

Kyodo, Bloomberg

Toyota Motor Corp. said Thursday it is opposed to the U.S. move to raise tariffs on imported vehicles, which could hit the domestic auto industry and economy.

The United States is the biggest market for Japanese carmakers and increasingly they have been shifting their production to the country. If U.S. President Donald Trump decides to rein in auto imports, that shift in production could accelerate, hollowing out the domestic industry that contributes much to Japan’s growth.

“We believe free and fair trade is the best way to create sustained growth for the auto industry and provides more choices and greater value for American consumers,” Toyota said in a statement.

With Trump launching an investigation this week into whether auto imports have caused threats to national security, which could lead to the imposition of higher tariffs, Toyota said that “such a determination seems implausible.”

The Wall Street Journal reported Wednesday that Trump is seeking new tariffs of as much as 25 percent on automobile imports, up from the current 2.5 percent duty on imported passenger cars.

Japanese carmakers exported around 1.77 million units to the U.S. in the 2017 fiscal year, according to the Japan Automobile Manufacturers Association.

Although Japanese auto exports to the world’s largest economy have been declining due to increasing production at local plants, the figure still means nearly 40 percent of car exports from Japan were bound for the U.S. market.

Toyota said it has 1,500 dealers and employs 136,000 people in the U.S., with an 11th U.S. plant on the way. Citing the nearly 12 million cars manufactured in the country last year, Toyota said it “has been a significant contributor” to American employment and growth.

Trump, who has been eager to resolve the large U.S. deficits in automobile trade with countries such as Japan and Germany, instructed Commerce Secretary Wilbur Ross to conduct the national security probe.

Ross said in an interview with U.S. business news network CNBC on Thursday, “National security is broadly defined to include the economy, to include the impact on employment, to include a very big variety of things.”

Trump has ordered a similar investigation invoking national security on steel and aluminum imports before eventually slapping stiff tariffs on such goods in March, including on products from Japan.

But the impact of tariff hikes on auto imports could be “huge beyond compare,” a Japanese trade ministry official said.

Trade Minister Hiroshige Seko warned, “It could bring about a mess in the world market.”

Among the world’s carmakers, Mazda Motor Corp., Mitsubishi Motors Corp. and India’s Tata Motors Ltd.’s Jaguar Land Rover unit would be hit hard, as all vehicles that those companies sell in the U.S. are imported.

About €22 billion ($25.8 billion) of sales from European auto producers could be affected by higher U.S. tariffs, according to estimates from Bloomberg Intelligence analyst Michael Dean. Volkswagen AG is most at risk through its production sites in Mexico and due to imports of Porsche and Audi vehicles from Europe.

Volkswagen and BMW ship a majority of the cars and trucks that they deliver to American consumers from abroad. Ford Motor Co., Honda Motor Co. and General Motors Co., on the other hand, produce substantial majorities of the vehicles they sell in the U.S. at domestic factories. Tesla Inc. would be completely unaffected, since it builds all of its models in California.

Mexico has become a major manufacturing base for most global car brands, including U.S. ones, as assembly-line workers there earn about one-tenth of what their U.S. counterparts make. Trump has blamed low-cost Mexican production for the outsourcing of U.S. manufacturing jobs south of the border.

Trump’s measure could force Japanese carmakers to increasingly shift their manufacturing to the United States, even as they have benefited from keeping production at home.

“By concentrating production in Japan, we can achieve mass production and create jobs domestically,” said Mazda President Masamichi Kogai. More than 20 percent of domestically produced Mazda vehicles are exported to the United States.

Mitsubishi Motors said in an emailed statement that the U.S. is an important market for the company and that it continues to monitor the situation. Subaru, which makes about half of the cars it sells in the U.S. locally, and Nissan declined to comment.

The impact could reach beyond the auto industry and hit the Japanese economy as a whole.

Germany’s Ifo Institute for Economic Research estimates that if the tariff is raised to 25 percent as reported, Japan’s gross domestic product would contract up to 0.1 percent, or €4.26 billion ($5 billion). It also said the German economy would face a larger impact than Japan.

The potential tariff hike triggered opposition even from within the United States.

It “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war,” U.S. Chamber of Commerce President Thomas Donohue said in a statement.