[TOKYO] Japanese carmakers have largely absorbed the cost of US President Donald Trump’s tariffs on auto imports, a move that may undermine the Asian nation’s negotiating power ahead of a Jul 9 deadline that will see duties rocket even higher.
So far, just three of Japan’s six major automakers have raised prices in the US, and only Subaru’s hike has come close to the 25 per cent tariff imposed on imported vehicles.
Toyota Motor, the world’s No 1 carmaker, only lifted prices on some models by a few hundred US dollars while Mitsubishi Motors increased prices by an average of just 2.1 per cent across three models. The average price of a new car in the US rose 2.5 per cent in April to about US$48,700.
The modest nature of the changes signals Japan’s carmakers are reluctant to pass the hit on to consumers. But it’s a decision that could backfire. Sparing American shoppers any kind of extreme sticker shock means Trump is less likely to change course.
Auto tariffs have emerged as a key sticking point in bilateral negotiations between the US and Japan as Trump fixates on US deficits in the sector while Japan tries to safeguard one of its main economic powerhouses.
Despite Japan’s chief trade negotiator Ryosei Akazawa holding a seventh round of talks with US counterparts, the two countries remain at loggerheads and the clock is ticking: Across-the-board levies of 24 per cent on Japanese goods are set to come into effect next on Wednesday (Jul 2). Trump’s even suggested they could be as high as 35 per cent.
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Industry watchers say an extended stalemate may force Japanese carmakers’ hands, with an ultimately beneficial outcome.
“If prices continue to rise due to Trump’s tariffs, the government will realise it’s not a simple scenario where raising tariffs benefits the US economy,” Takeshi Miyao, an analyst at automotive consultancy Carnorama, said. “This may lead to changes in tariff negotiations.”
Japan’s cautious approach contrasts with the quick retaliation by China, which leveraged its dominance in industries such as e-commerce to make it clear to Trump that American consumers would be footing the bill. Some products sold on platforms such as PDD Holdings-owned Temu and Shein Group nearly doubled in price in the wake of fresh duties.
Tokyo, for its part, has maintained its stance that it will try to settle all the tariff disputes in one go. Akazawa has made clear that despite the looming Jul 9 deadline, he will not be pressured into a deal.
The protracted negotiations make it more likely Japan’s carmakers will turn to price increases in the US to minimise the impact on their bottom lines.
Those hikes could start when manufacturers offer upgraded specifications on models, Bloomberg Intelligence senior analyst Tatsuo Yoshida said. Still, any price increases are likely to be phased in gradually, and it could take as long as three to four years for a 25 per cent levy to be reflected in vehicle prices, he said.
While the consensus is that some level of tariffs on cars will be inevitable, a lower 10 per cent tariff may be more palatable. The auto industry is a bellwether for wage trends and generates around 10 per cent of gross domestic product. The sector also accounts for one-third of Japan’s exports to the US.
“There’s no reason to continue cutting profits indefinitely to offset high tariffs when it’s unclear how long this situation will persist,” Carnorama’s Miyao said. BLOOMBERG
