Will Japan’s Trade Agreement Spark Rise in U.S. Carmaker Sales?

President Trump has been lauded for his recent approach to reduce trade obstructions on American goods such as automobiles. However, the effectiveness of these agreements is being scrutinized. A recent commitment made by Japan to increase its acceptance of American vehicles has been seen as a triumph for the president, as he had long been antagonized by the prevalence of Japanese cars in the US, without seeing a similar intention to buy American vehicles from Japan. This imbalance has strongly influenced his belief that the openness of the American economy is not correspondingly mirrored, leading to a perpetual trade deficit.

Since the commencement of his second term, Trump has been audacious in escalating tariffs and coaxing other nations into abolishing barriers that span taxes on American beef and soybeans to specific car safety and local content prerequisites in countries including Japan and Indonesia. Several trade professionals doubt the effectiveness of President Trump’s course of action. They suggest that these nations have, in some cases, agreed to address particular characteristics of the president’s grievances, for instance, car sales in Japan; a scenario that could arguably not lead to a surge of new American exports.

Automotive professionals and industry connoisseurs who had previously been linked with American automakers in Japan voiced their concern that the agreement to eradicate trade barriers may not substantially increase sales. In the words of Wilbur Ross, the commerce secretary during Trump’s first term, ‘The president understands that we can push further than we had previously done to correct these discrepancies.’

Historically, American car companies have had difficulty securing a significant presence in the Japanese market despite the fact that there have been no tariffs on imported vehicles since the late 1970s. Ford Motor Company withdrew from Japan in 2016, citing an absence of viable paths to profitability. The previous year, less than 1% of auto sales were attributed to American brands such as General Motors.

The president has placed the blame on inhospitable regulations in Japan for crippling American companies’ capabilities to sell cars on the market. According to President Trump, these constraints include Japan’s unwillingness to accept vehicles that adhere to U.S. safety standards, which are distinctively different from international standards. This issue was a focal point of Trump’s attention during his first term.

Achievement arrived late last month when Japan agreed to a 15% omnibus tariff on American goods. This was lower than the previously suggested 25% tariff, in exchange for hundreds of billions of dollars invested into the United States. The United States was thus granted the ability to import American-produced cars without the exceptional safety standards and testing usually required by Japan.

Trump recounted a similar accord when unveiling a new trade deal with South Korea, mentioning that in exchange for an identical 15% tariff rate like Japan, South Korea would start receiving more American vehicles into its market without imposing duties on them. This was significant considering the minimal percentage of sales contributed by American brands in South Korea and Japan.

In industry insiders’ view, safety and testing requisites can augment the cost of American cars in Japan by a hefty sum. Nevertheless, certain experts in the field express skepticism that amendments to these requirements would stimulate sales. They draw attention to the fact that in Japan, where streets are usually overcrowded and narrow, consumers favor compact, fuel-efficient vehicles, commonly with right-hand drive. Domestic brands like Toyota, Honda, and Nissan provide an extensive selection of such options.

In Japan, trade restrictions were never the impediment facing American carmakers, as per Tsuyoshi Kimura, a professor at Chuo University in Tokyo, who was employed by General Motors in the late 1990s till the early 2000s. Japan, he noted, is a comparatively small and already saturated car market, and hence majority American automakers have not invested in designing models specifically for Japan.

The American manufacturers primarily loaded their lineups with large SUVs and trucks, partly because they find it challenging to profitably manufacture compact cars. As Mr. Kimura expressed, ‘Their vehicles just don’t match with the fundamental demands of the market. Even with Japan loosening up its car market, it’s doubtful that American cars will find demand.’

President Trump’s preoccupation with American car sales in Japan is indicative of his past trade negotiation tactics, reminding one of his emphasis on U.S. dairy exports during the formulation of the United States-Mexico-Canada Agreement in his first term. This point is argued by Alan Wolff, a senior fellow at the Peterson Institute for International Economics.

He suggested that the scope of negotiations could have been broader and perhaps more impactful, such as addressing exchange rates. However, he acknowledged that Mr. Trump places enormous political value on securing contractual rights to open specific export sectors. He emphasized, ‘These are of importance to him, and therefore significant to the United States.’

Contrarily, for Mr. Ross, the abolition of trade barriers in countries such as Japan was fundamentally an issue of principle. This progression of trade negotiations in Japan brings back memories of the 1980s and 1990s for some, a time when a trade war between the two countries seemed imminent, mainly over the disparity between American and Japanese car sales.

In 1995, Japan agreed to certain measures, including greater dealership access for foreign cars, which ultimately did not move the needle on American sales in the country. However, during this period, Japanese car makers were palpably investing in the manufacturing of vehicles within the United States, thus shifting the focus away from auto sales discussions in U.S.-Japanese trade talks.

One notable incident during this period involved then AT&T executive Glen S. Fukushima and U.S. ambassador to Japan, Walter Mondale. After witnessing Fukushima’s company car was a Nissan, Mondale suggested he drive an American car given the recent agreement favoring US automakers. After attempting to use a Cadillac Fleetwood, Fukushima found it impractical for Tokyo’s roads and returned to his Nissan. Upon explaining to Mondale, Fukushima said, ‘He was a reasonable man. He understood.’