Japan rejects US 25% auto tariffs, says carmakers already boost American economy

Japan has reiterated its firm opposition to the25 per cent US tariffs on automobile imports, just as a high-level trade delegation prepares to enter critical negotiations in Washington. Ryosei Akazawa, Japan’s chief trade negotiator, said on Thursday that such steep duties are “unacceptable”, especially given the scale of Japan’s contribution to the American automotive market.

Speaking to reporters ahead of his trip to the US, Akazawa said Japanese carmakers produce 3.3 million vehicles in the US annually, far more than the 1.37 million they export to America. The industry has collectively invested over $60 billion in the US and is responsible for 2.3 million jobs, according to figures shared with Reuters. In fact, 300,000 vehicles built in the US by Japanese companies are exported to other markets, contributing to America’s own trade surplus.

“We have repeatedly explained to the US that Japan’s automobile industry has made an enormous contribution to the US economy,” Akazawa said. “We consider the 25 per cent tariff to be unacceptable," as quoted by Bloomberg.

Tariffs threaten Japan’s fragile recovery

The tariff shock comes at a delicate moment. Japan was beginning to show early signs of economic revival, wage growth was picking up and consumer demand was starting to strengthen after years of stagnation. But that fragile recovery now appears at risk. As per a Bloomberg poll, 64 per cent of economists believe the tariffs could push Japan into a recession.

The automobile industry is the backbone of Japan’s economy. It employs 5.6 million people, or 8.3 per cent of the country’s workforce, according to the Japan Automobile Manufacturers Association. Vehicles and auto parts account for one-third of Japan’s exports to the United States, Tokyo’s largest trading partner and a key contributor to its trade surplus.

Among Japanese carmakers, Subaru appears the most exposed. Over 70 per cent of its global sales depend on the US market, and the company now estimates a $2.5 billion hit from the tariffs this fiscal year, as per Bloomberg Intelligence. While some manufacturers may explore shifting production to the US, such decisions risk hollowing out Japan’s domestic manufacturing base and affecting thousands of parts suppliers.

US remains key market for Japanese automakers

A Bloomberg chart on 2024 car sales reinforces just how vital the US market is for Japanese automakers. Of Toyota’s 10 million global vehicle sales, 23 per cent were in the US. For Honda and Nissan, the figures stood at 37 per cent and 28 per cent, respectively. Subaru stands out, with an overwhelming 71 per cent of its sales concentrated in the US alone.

Japan’s supply chain at breaking point

Smaller suppliers are already under pressure from the global EV transition are feeling the effects first. At Daido Steel Co., a 12,000-employee firm making magnets for hybrid engines, executives are worried about indirect fallout. The company doesn’t export directly to the US, but it supplies major automakers like Honda and Toyota, making it vulnerable to downstream production cuts.

Another example is Hasegawa Yuuki Co., a small manufacturer with just 50 employees. The company has already lost 5 per cent of its orders after Honda moved some of its production to Alabama in response to the tariffs. President Noriyuki Hasegawa said the firm is now exploring non-automotive sectors to stay afloat, including furniture fittings and home storage equipment.

Ogami Co., another plastic components supplier based in Gunma, has put capital investment plans on hold and warned that salary hikes for 2025 are now “difficult”. With thin profit margins and limited flexibility to expand overseas, many SMEs like Ogami may not survive prolonged trade disruptions.

This is particularly concerning because two-thirds of Japan’s workforce is employed by small and mid-sized enterprises (SMEs), many of which are tied to the auto supply chain. The ripple effect of tariffs could therefore trigger a broader employment crisis and drag down wage growth.

Tokyo’s last push

Japan’s government is now in damage control mode. Prime Minister Shigeru Ishiba, who faces an election next month, has instructed negotiators to seek “tariff concessions” from Washington. Akazawa’s upcoming talks in North America, his seventh round with US officials are seen as Tokyo’s last chance to soften the impact.

Japan’s best-case outcome, according to analysts cited by Bloomberg, is a reduction of auto tariffs to 10 per cent. Even that would be painful, but manageable. Analysts estimate that a 10 per cent tariff could be absorbed through gradual price hikes of 2–3 per cent per year, alongside new car model rollouts to maintain buyer interest.

But a full 25 per cent levy would push several automakers into crisis mode. “At that level, one or two of Japan’s major carmakers may require state support,” said Tatsuo Yoshida, a senior auto analyst at Bloomberg Intelligence. He compared the potential fallout to General Motors during the global financial crisis—a scenario Tokyo would want to avoid at all costs.

Will protectionism outlast Trump?

Japanese businesses are watching developments closely. For many, the fear isn’t just about this tariff round—it’s about whether Trump’s protectionist wave will continue if he secures another four-year term.

“Surviving the pandemic was hard enough. But this time, we may not make it,” said Hiroaki Ogami, the head of Ogami Co., in an interview with Bloomberg. “We can’t just wait this out.”

(With inputs from the agencies)