Auto tariff impasse sends US prices up, demand down

The Mainichi

09-07-2025

TOKYO (Kyodo) -- No deal before the initial July 9 deadline for U.S. "reciprocal" tariffs is expected to pressure Toyota Motor Corp. and other major carmakers to raise prices to offset higher import costs -- a strategy likely to dent demand and further squeeze profits.
Japan-U.S. trade talks have made little headway, dashing Japanese carmakers' hopes for a deal to eliminate or lower an additional 25 percent auto tariff by the expiration of a pause on country-specific tariffs, now extended to Aug. 1.
Britain and Vietnam are the only countries to have reached a deal with the Trump administration. Japan had sought an agreement covering not just reciprocal tariffs but also auto duties and other trade issues as a package.
A total tariff rate of 27.5 percent imposed on April 3 on cars shipped to the U.S. market is threatening to slow overall auto demand, with analysts noting that manufacturers offering attractive hybrid lineups may be better positioned to withstand the impact.
"Automakers, especially those with low sales volumes or in management crisis, will have no option but to raise vehicle prices," said Hiroki Shibata, managing director at S&P Global Ratings.
"Now that the auto tariffs have been in place for three months...automakers' efforts to raise vehicle prices will be more apparent in the coming months through September," he said.
U.S. President Donald Trump said Monday that the United States will impose a 25 percent tariff on imports from Japan starting Aug. 1, slightly higher than the previously set rate of 24 percent.
The president said the latest tariff measure will not affect sector-specific tariffs that have already taken effect, such as those on vehicles, auto parts, steel and aluminum.
"It seems the United States has no intention to lower auto tariffs because if it did so, it would keep facing a dilemma of its trade deficit with Japan being left unresolved," said Junichi Makino, chief economist at SMBC Nikko Securities, noting that autos account for about 70 percent of U.S. imports from Japan.
"The Japanese government may give up on its efforts to reduce auto tariffs and shift to negotiating lowering levies on other items," Makino said.
Among Japan's top three automakers, Toyota is expected to be the least affected by price increases, as demand for its wide range of hybrid models is likely to remain strong in the U.S. market, said Yuta Misumi, associate director at S&P Global Ratings.
Hybrid vehicles are gaining popularity in the world's second-largest auto market, with sales jumping 36 percent last year, according to the government-affiliated Japan External Trade Organization.
Honda Motor Co. has also attracted U.S. customers with its hybrid lineup, and strong sales in the United States are helping offset sluggish performance in China, the world's largest auto market, Misumi said. Nissan Motor Co., meanwhile, is focused on restructuring, including scaling back global production capacity and its workforce, he added.
Toyota, the world's top carmaker by volume, disclosed the impact of the tariffs for just the first two months of the year through March 2026, saying its operating profit was reduced by 180 billion yen ($1.24 billion).
Nissan said its full-year operating profit could be reduced by up to 450 billion yen, while Honda estimates the impact of the auto tariffs could reach as much as 650 billion yen in the current fiscal year.
Starting July 1, Toyota raised U.S. prices by an average of $270 per vehicle for its Toyota brand models and $208 for its upscale Lexus line.
Mitsubishi Motors Corp., which initially responded to the higher tariffs by suspending deliveries from U.S. ports to local dealers, lifted prices for some models by an average 2.1 percent.
Toyota said the price hikes were part of its annual review, while Mitsubishi Motors said its new prices were not aimed at addressing the auto tariffs.
Among other automakers, Ford Motor Co. reportedly raised prices of some U.S.-bound models made in Mexico, and Subaru Corp. also raised vehicle prices.
S&P Global Ratings in May cut its forecast for 2026 U.S. auto sales by 1 million to 15 million vehicles, citing weaker demand partly due to higher prices.
Still, analysts say the quickest and most effective way for carmakers to ease tariff pressure is to pass higher import costs on to customers.
Analysts say carmakers could also build new plants in the United States to avoid higher tariffs -- a goal the Trump administration is seeking to achieve through its trade policy.
But new plants would require significant investment and years to become operational, and carmakers would also need to reorganize parts of their global supply chains by persuading suppliers to serve the new facilities, analysts say.
Higher U.S. labor costs and the need to procure some key components from China are also likely to pose challenges, they say.
As the United States will remain a key market, "the future performance of each company depends on the success of their efforts to mitigate the tariff impact," Misumi said.
(By Junko Horiuchi)