With only days remaining before U.S. President-elect Donald Trump takes office amid his threats of tariffs, Japanese automakers are preparing to explore new partnerships and revamp supply chains to stay competitive in the vital U.S. market.
Among Japanese industries, the auto sector is expected to face the highest risk from the incoming president’s proposal to impose 10 to 20 percent tariffs on all U.S. imports.
Vehicle exports comprise the largest share of Japan’s exports to the world’s largest economy, accounting for about 30 percent of the total in 2023.
Toyota Motor Corp., Honda Motor Co., Nissan Motor Co. and their smaller local peers will have no choice but to respond to the tariff plan, which would raise vehicle prices and dampen consumer demand unless countermeasures are implemented. Even if prices remain unchanged, carmakers would face a squeeze on profitability.
File photo taken in December 2022 shows a production line for Lexus luxury cars at Toyota Motor Corp.’s Miyata plant in Miyawaka, Fukuoka Prefecture. (Kyodo)
The United States currently imposes a 2.5 percent tariff on Japanese cars, 2 percent on buses, and 25 percent on trucks, while Japan imposes no auto tariffs of its own.
“It is a highly competitive market, but it is also a market easier to make money compared to other markets due to its massive size,” Seiji Sugiura, senior analyst at Tokai Tokyo Intelligence Laboratory Co., said of the U.S. market.
Producing vehicles in Japan rather than at local plants for the world’s second-largest auto market after China makes business sense. Japanese automakers have benefited significantly from the yen’s recent slide to multi-decade lows against the U.S. dollar.
A weaker yen makes Japan-made vehicles more price-competitive overseas and increases income earned abroad when converted back into Japanese currency.
However, analysts say Trump’s higher import duties are likely to significantly offset the currency advantage and reduce profits, particularly for Mazda Motor Corp. and Subaru Corp.
Subaru and Mazda export about 50 percent and 70 percent of their vehicles sold in the U.S. market from Japan, respectively, compared with over 20 percent for Toyota and less than 1 percent for Honda.
Operating profit could decline by 35 percent at Subaru and 33 percent at Mazda in the fiscal year ending March 2026 due to the additional levies, analysts at Nomura Securities Co. said in a report released in September.
“This is not a problem one company can solve alone,” Mazda President Masahiro Moro said at a November press conference on the company’s latest earnings, referring to the tariff plan. He noted that Mazda would closely monitor changes in U.S. trade policy under the new administration. The company operates a plant in the state of Alabama that was jointly established with Toyota.
Subaru said it is considering boosting production capacity at its plant in the state of Indiana to lessen the impact of the tariffs.
The situation may be more complicated for Mazda, as it also produces vehicles in Mexico for the U.S. market, another target of Trump’s tariffs.
Trump has announced plans to impose a 25 percent tariff on imports from Canada and Mexico, effective from his first day in office after being sworn in on Monday.
About 30 percent of Honda vehicles sold in the United States are sourced from Canada and Mexico. Toyota also produces vehicles in both neighboring countries for the U.S. market, while Nissan ships about 40 percent of its Mexico-made vehicles to the United States, with all benefiting from a free trade agreement among the three nations.
Japan’s two largest automakers, Toyota and Honda, have greater production capacity in the United States than other Japanese manufacturers. However, Trump’s proposed 25 percent tariff is likely to prompt them to reassess their global production strategies, analysts said.
Honda may consider relocating production out of Mexico, depending on the duration of any new tariffs, Honda Executive Vice President Shinji Aoyama said at a November press conference on the company’s latest earnings.
“We cannot move production out of Mexico right away,” Aoyama said. But the company is aware that “there is going to be a big impact” from the tariff plan, he said.
Jin Tang, senior principal researcher at Mizuho Bank, said Japanese automakers should prioritize improving profitability, such as through cost-cutting measures, as Trump’s plan is expected to impact sales of vehicles from Canada and Mexico.
“It is possible that they lower their production volumes or reduce the number of models they build” in Mexico and Canada to mitigate the impact of the plan, he said.
Nissan, which exports more vehicles from Mexico than any other Japanese automaker, is in greater need of external support to withstand the new levies.
The carmaker is scaling back its global production capacity as part of restructuring after falling into a loss in the July-September quarter due in part to sluggish U.S. sales.
Japan’s third-largest automaker by volume announced in December plans to merge with its second-largest rival, Honda. Analysts say the merger could offer a solution by allowing the two companies to utilize each other’s plants, share expenses for developing next-generation electric vehicles and bolster their product lineups by providing complementary models.
Honda will consider supplying hybrid vehicles to Nissan, Honda President Toshihiro Mibe said at a December press conference announcing the merger plan. This would allow Nissan to enter the U.S. hybrid market and meet the growing demand for gasoline-electric models.
“Nissan is not the only company that will be hit by the tariffs, but they could further deteriorate the harsh business environment it is facing in the United States,” said Sanshiro Fukao, executive fellow at the Itochu Research Institute.
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