Japan's Auto Sector Is Poised To Weather A U.S. Tariff Storm

Tokyo's overall strategy in the Asia-Pacific is to counter China's rise by drawing the region's economy closer to the United States and Japan.

And China, under its own massive U.S. trade pressure, decided to raise its tariffs on U.S. autos to 40 percent in July while lowering tariffs from other destinations from 25 percent to 15 percent — opening more room for Japanese imports. The burgeoning Chinese middle class has fueled massive demand for automobiles right on Japan's doorstep, with overall passenger vehicle purchases in China hitting nearly 24 million in 2016, as compared to 17.5 million in the United States. And while new car registrations in the United States essentially flatlined in 2016, new vehicle registrations in China rose nearly 14 percent.

China has become an increasingly important market for Japan's big three automakers. In 2017, Toyota sold 2.43 million vehicles in the United States and 1.29 million in China; Nissan's U.S. sales totaled 1.59 million, with 1.52 million sold in China; Honda's sales in both markets were also nearly on par (30 percent of all export sales in the United States; 28 percent in China). All have plans to increase production capacity and sales in China. In fact, on Aug. 15, reports emerged that Toyota is planning to ramp up its annual production in Tianjin, China, by almost a quarter — 120,000 vehicles — and has set a goal of doubling its sales there to 2 million a year.

While Japan's reliance on access to the U.S. market puts it at moderate risk if U.S. tariffs do go into force, its previous adaptations to U.S. protectionist pushes gives it some degree of leeway. Ultimately, the unintended consequence of U.S. protectionism might be to more closely knit the Pacific economies together — with China's growing consumer class as a major component.

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Gary Anderson 1 year ago Contributor's comment

Japan can reap rewards of lower tariffs with other nations, making up as big a chunk of auto exports from Japan as does the USA. Trump has underestimated Japan. Great article.