Carmakers' Anxiety Grows as U.S. Tariff Talks Stall;Japan Exporters May Have No Choice But to Raise Prices
Automobiles produced in Japan for export are lined up at the port of Kawasaki in March.
Concerns are mounting among Japanese carmakers that Japan-U.S. tariff negotiations will be prolonged, as the two sides failed to reach an agreement at their summit meeting on Monday.
With some new U.S. tariffs, including those on automobiles, already in place, Japanese firms can expect a greater impact the longer negotiations continue.
Japanese carmakers and companies in other industries may need to review their pricing strategies for the U.S. market.
Subhead: Tariff help desks
At a press conference following Tuesday's Cabinet meeting, Economy, Trade and Industry Minister Yoji Muto expressed his intention to implement measures that would mitigate the impact on domestic companies, including small and medium-sized enterprises.
'We are receiving an increasing number of inquiries about cash flow,' he said. 'July 9 is the deadline for the [imposition by the United States of its currently suspended] additional reciprocal tariffs, so I want to understand the situation and discuss this issue with the prime minister.'
In April, the government set up tariff help desks at 1,000 locations nationwide. By early June, the desks had received about 3,500 consultations, and inquiries related to cash flow had recently increased, according to sources.
The automobile industry is particularly concerned about the impact.
In fiscal 2024, automobiles and auto parts accounted for a total export value of ¥7.4 trillion, representing 34.2% of all of Japan's to the United States. Given its broad base, the car industry's impact on the Japanese economy will be significant.
Vexing situation
The Japanese government is seeking a comprehensive review of U.S. tariffs, and lowering automobile tariffs is its top priority in negotiations.
A Japanese government official said, 'We must prepare for a long battle,' as the divide between Japan and the United States continues to persist.
A senior executive at a major automaker sighed: 'We had high hopes, so this is disappointing. However, an easy compromise would also be problematic. We remain in a vexing situation.'
Toyota Motor Corp. estimates that the increased costs associated with U.S. tariff measures will reduce its operating profit by ¥180 billion in April and May alone.
Subaru Corp., whose vehicles are popular in the United States, exports from Japan more than 40% of the cars it sells in the United States. This reliance on exports is expected to reduce its operating profit by up to ¥360 billion for the fiscal year ending March 2026.
The longer the negotiations drag on, the more the manufacturers' profits will decrease, which will inevitably affect parts suppliers as well.
Possible price hikes
Japanese automakers have been selling vehicles in the United States primarily from inventories exported before the tariffs took effect. Now, with more than two months having passed since the tariffs were imposed, their inventories are beginning to dwindle.
As tariff costs directly translate to export costs, a senior executive at a major automaker stated that it would be impossible for their company to absorb all tariff costs themselves, indicating that they would eventually have to resort to price increases.
Many Japanese automakers have been cautious about raising prices, fearing it could dampen demand for new cars. However, they may soon be forced to reevaluate their pricing strategies.
'If additional tariffs on the automobile industry continue, it could trigger a gradual economic recession,' said Takahide Kiuchi, executive economist at Nomura Research Institute Ltd.
Nevertheless, he suggested that a revision of tariff policies could occur if inflation concerns in the United States increased. He advised the government to 'patiently await a revision rather than easily yield to the United States.'
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