Japanese Government Urges Negotiations Amid Threat of 25% Tariff on Autos

Concerns Mount Over Potential Economic Impact on Japan’s Automotive Industry / Reuters

The Japanese government is accelerating negotiations in response to President Trump's threat to impose a 25% tax on imported automobiles. This move comes as Japan recognizes the significant implications such tariffs could have on its automotive sector, which plays a vital role in the country's exports to the United States. Yoshimasa Hayashi, Japan's Foreign Minister, addressed reporters, emphasizing the importance of the U.S. market for Japanese automobiles. He stated that once more details about the proposed measures are released, Japan would thoroughly assess the potential impacts and respond appropriately.

Last week, Japan's Foreign Minister, Yoko Takeda, requested U.S. Secretary of State Marco Rubio to exclude Japan from the tariffs targeting automotive imports. Additionally, Japan seeks exemptions from existing steel and aluminum tariffs. According to Harumi Taguchi, a senior economist at S&P Global Market Intelligence, approximately one-third of Japan's exports to the U.S. are automobiles, indicating substantial potential economic repercussions if these tariffs are enacted.

While President Trump has also suggested the imposition of similar tariffs on semiconductors and pharmaceuticals, the economic impact of these measures is considerably less severe than that on the automotive sector. Exports of semiconductors and semiconductor manufacturing equipment accounted for just 3.7% of Japan's total exports to the U.S. in 2024, while medical products represented a mere 1.9%.

The apprehension regarding Trump's potential tariffs has already begun to reflect in the Tokyo stock market, where indices for the automotive, pharmaceutical, and precision machinery sectors saw significant declines compared to the broader index.

According to the Japan Automobile Manufacturers Association (JAMA), the automotive industry, including related suppliers, employs approximately 5.58 million people, which constitutes 8.3% of Japan's total workforce. In the previous year, automotive exports represented 17% of all outbound shipments from Japan, with over one-third directed to the U.S. This trade relationship has been instrumental in maintaining a high trade surplus for Japan with the United States.

Notably, despite the strong export figures, JAMA's estimates reveal that Japanese automakers are producing more vehicles in the U.S. than they are exporting from Japan. In 2023, Japanese automotive manufacturers produced around 3.3 million vehicles in the United States, while only 1.5 million were exported from Japan. This indicates a growing trend of local production in response to market demands, further complicating the implications of any new tariffs.