U.S. President Donald Trump’s bashing of Japanese automakers escalated from his criticism of Toyota Motor Corp.’s plan to build a new plant in Mexico to a call on the automakers to boost their output in the United States and to a demand that Japan import more made-in-America vehicles.
The tone of his rhetoric sounds far more radical than in the demands made by the administration of U.S. President Ronald Reagan in the 1980s, when the bilateral friction over trade disputes were at its peak. Trump will likely not let up until there are visible signs of progress such as recovery in employment by the U.S. automakers and their exports. The only choice left for Japanese makers like Toyota and Honda may be importing the vehicles made in their U.S. plants to Japan.
Alarmed over Trump’ increasingly protectionist rhetoric, one Toyota insider started reviewing the history of Japan-U.S. auto trade talks of the 1980s — in hopes of finding clues to coping with the emerging situation.
Back in the 1980s, Japan accounted for roughly 60 percent of the U.S. trade deficit — and Japanese auto exports to the U.S. was responsible for a major portion of that. Fuel-efficient Japanese cars were extremely popular among American consumers because of high gasoline prices until the cost of oil started falling in 1986.
The Reagan administration forced the Japanese auto industry into accepting a voluntary restraint on their exports to the U.S., under which the annual shipments from Japan was limited to 1,680,000 vehicles. The Japanese automakers responded by launching production in the U.S. one after another to evade the trade restrictions — Honda was the first by building its long-planned auto plant in Ohio, and was followed by Nissan and Toyota.
In 2016, 59 percent of the Japanese vehicles sold in the U.S. market were made in the automakers’ plants in the U.S. The figure compares favorably with 53 percent for European automakers and 55 percent for South Koreans. The problem is that vehicle shipments from Japan to the U.S. are continuing. More than 20 percent of Toyota cars sold in the U.S. are shipped from Japan, while the ratio tops 50 percent for Mazda Motor and Fuji Heavy Industries.
The figure is high for Mazda and Fuji since they do not have enough resources to invest heavily in U.S. production. But Toyota also has a long-term goal of maintaining annual domestic production of 3 million vehicles in order to protect the manufacturing bases for both itself and its suppliers.
Should Toyota bow to Trump’s pressure and build more production facilities in the U.S., it will inevitably need to slash domestic output, which in turn would cause some of Toyota’s suppliers to go out of business, particularly smaller subcontractors at the lower end of the production hierarchy, many of which face serious problems like weak management bases, the aging of their executives and scarcity of potential successors. Once such production networks are lost, they will be hard to rebuild.
Among the options that Japanese automakers contemplate to cope with the pressure from Trump calls for importing vehicles built in their U.S. plants to Japan. In fact, over the past decade, the “reverse import” of Japanese cars made overseas has been growing as part of the automakers’ efforts to cope with the strong yen and reduce costs by consolidating their production bases across borders.
For example, Nissan imports its March cars and Mitsubishi Motors the Mirage, both from their Thai plants, and Mazda has shipped to Japan vehicles jointly built with Ford Motor also in Thailand. But Toyota has been importing only several hundred midsize Avensis station wagons annually from its Derbyshire plant in Britain.
The reason they import cars only from Thailand and Britain is simple: In both countries, motor vehicles drive on the left side of the road and have the steering wheel on the right-hand side, just like in Japan. Importing from the U.S. plants, meanwhile, would require changing the steering wheel position, which would complicate the production processes, reduce the scale merit and push up costs.
When the high labor and production costs in the U.S. are taken into account, importing vehicles made in U.S. plants does not make economic sense. But such a scheme might be feasible if it serves the triple purposes to maintain the level of car exports from Japan to the U.S., avoid additional investments to build more plants in the U.S., and keep their Mexico plants up and running.
Toyota may find it feasible to sell in Japan the Camry sedan and Tacoma pickup models assembled in the U.S., which may, with their uniquely American designs, attract Japanese consumers, even if they are sold as left-hand drive models.
Of course, the volume of such vehicle exports from the U.S. to Japan will add up to several thousand units at most a year — and will have little or no impact either on reducing the U.S. trade deficit or expanding American jobs. However, the sight of big American-made pickup trucks running on Japanese roads may have a symbolic impact and serve to save Trump’s face.
There may be drawbacks to any attempt to appease Trump by importing Japanese cars made in the U.S. It could lead his administration to escalate its demands on Japan, such as by calling for the setting of numerical targets on such vehicle imports. General Motors and Ford may aim for exporting cars made by their group firms in China and South Korea to Japan. Toyota officials are reviewing the process of automotive negotiations with the U.S. in the 1980s to verify how the voluntary export curbs were put on the agenda of the talks.
Importing U.S.-made Japanese vehicles would be much less costly than scrapping plans on Mexico plants or investing in new plants in the U.S., and may also serve to protect the production networks at home. Still, the step may prove counterproductive if it paves the way for the U.S. administration to escalate its demands on Japan.
If Japanese automakers cave in to the trade pressures by shipping their U.S.-made vehicles to Japan, the Trump administration may seek to revive a long-standing demand from both the U.S. government and the auto industry: to abolish tax break being offered to users of the uniquely Japanese category of minivehicles (with engines displacing up to 660cc).
A possible decline in the sales of such vehicles with the elimination of the tax breaks will not necessarily increase U.S. auto exports to Japan. But it would certainly add pressures on Japanese automakers like Toyota, whose group includes Daihatsu Motor, a major producer of minivehicles, and Honda, whose domestic sales have been lifted up by brisk demand for its minicars.
The decision made in February by Suzuki Motor, another top minivehicle maker, on an alliance with Toyota may have been facilitated by the concern on the part of its chairman, Osamu Suzuki, over the possibility of the Trump administration targeting the minivehicle category in the automotive trade dispute with Japan. The Japanese auto industry needs to brace for a continued onslaught from the U.S. president.
This is an abridged translation of an article from the March issue of Sentaku, a monthly magazine covering political, social and economic scenes. English articles of the magazine can be read at www.sentaku-en.com