Will Trade Deals Give Japanese Cars an Edge?

Overview of the U.S.-Japan Trade Deal

A day after the United States reached a trade deal that imposes a 15 percent tariff on imports from Japan, President Donald Trump declared that U.S. business would “BOOM.” However, early reads from auto analysts suggest a more complex picture — some experts believe Japanese companies may benefit more than their rivals in the short term.

The deal involves a 15% tariff on Japanese imports, including automobiles and auto parts, instead of the previously threatened 25% rate. In exchange, Japan will remove trade barriers for U.S. auto and agricultural imports and invest $550 billion in the United States. This was one of the latest trade agreements announced by the Trump administration, as it works to finalize deals with various countries it has threatened with high levies.

Reactions from Industry Leaders

Despite the president's optimistic statements, the Big Three U.S. automakers — General Motors, Ford, and Stellantis — do not share his confidence. Matt Blunt, president of the American Automotive Policy Council, a lobbying group representing these three automakers, stated that an agreement where Japanese automakers pay a lower tariff rate on their imports than U.S. companies is a bad deal for U.S. industry and workers.

White House spokesman Kush Desai described the trade deal as a way to improve U.S. automakers’ access to the Japanese and Indonesian markets. He also mentioned that other initiatives backed by Trump, such as tax cuts and deregulation, would support the domestic auto industry.

Impact on U.S. Auto Industry

Since the Trump administration threatened sweeping tariffs on most trade partners, including close allies like Mexico and Canada, the U.S. auto industry has been working to adjust. Supply chains cross multiple borders, particularly in North America, where goods from Mexico and Canada are subject to 25% tariffs.

Manufacturers with U.S. operations have felt the impact. For example, GM reported that tariffs cost it $1.1 billion in the second quarter. Stellantis, which includes brands like Chrysler, Dodge, Fiat, and Jeep, faced about $350 million in tariff costs in the first half of the year.

Car prices suggest that automakers have absorbed much of the tariffs for now rather than passing them on to buyers. Kelley Blue Book data for June shows the cost of a new vehicle rose 1.2% year-over-year to $48,907. While this is the largest year-over-year growth of any month this year, it remains well below the average 10-year increase of 3.9%.

Tariff Impacts on Consumers

Jonathan Smoke, chief economist at Cox Automotive, noted that vehicles assembled in the U.S. will see the least added cost under the current trade regime, adding as much as 4%, or about $2,000, to what consumers pay. Many models, including Toyota Camrys and Ford Broncos, are assembled in the U.S.

However, many cars from U.S. companies are also assembled in Mexico and Japan. Cox estimates that consumers will pay an additional 9%, or $3,010, for cars assembled in Japan, which include some Toyota models, such as the Prius and the 4Runner. Vehicles assembled in Mexico will see the highest costs to consumers — about 10% or $3,550 — according to Cox. These include the Honda Fit, the Chevrolet Equinox, and the Ford Maverick.

Analyst Perspectives

Other analysts agree that Japanese companies could have a near-term advantage. Karl Brauer, executive analyst at iSeeCars, wrote that having this agreement in place before any other foreign automakers gives Japan a near-term advantage in terms of cost, even compared to some domestic U.S. products with a high degree of both foreign production and parts content.

Autos Drive America, which represents foreign automakers in the U.S., expressed encouragement over the Japan trade deal. Jennifer Safavian, president and CEO of Autos Drive America, said the certainty provided by this agreement allows foreign automakers to plan for greater investment, bringing even more production to the U.S. and providing affordable options for American consumers.

Long-Term Outlook

U.S. businesses may thrive in the long run, according to Erik Gordon, a professor at the University of Michigan’s Ross School of Business. If North American tariffs settle at 25%, U.S. companies "will move a lot of their manufacturing and assembly to the U.S. from Mexico and Canada," Gordon said in an email.