Are you looking for a Japanese car? If so, you might want to buy as soon as possible.
The Japanese auto industry faces a major threat from its most important trading partner. The United States currently imposes a 2.5% import duty on passenger cars made in Japan. However, if the current trade negotiations fail, these tariffs are expected to increase by up to 25 percent by the end of the year.
The result? Significantly more expensive Japanese imports. An imported Japanese car currently priced at $ 30,000 could sell for $ 37,500, a difference of $ 7,500.
Shortly after taking office, President Trump withdrew from the Trans-Pacific Partnership, a trade deal involving 12 countries, including Japan. Under the TPP, US tariffs on imported Japanese cars, trucks and auto parts would have been phased out and, in turn, US farmers would have gained increased access to the Japanese market. But by pulling out of the TPP, the United States left its trade relationship with Japan stuck at pre-TPP levels, with neither country having anything to show during years of arduous negotiations leading up to the trade deal. .
To make matters worse for the United States, the remaining eleven countries quickly renegotiated a new trade deal between them. Called the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP), it lowered trade barriers on goods traded between member countries. The prices of Vietnamese products sold in Japan, for example, would drop accordingly, but since American products did not benefit from reduced trade barriers, their prices would remain high, putting American companies at a disadvantage in the Japanese market.
The United States already had a large merchandise trade deficit with Japan ($ 67 billion in 2018), and with U.S. exports to the country now more threatened by the CPTPP, the Trump administration has entered into bilateral negotiations. They were targeting the Japanese auto industry, an export heavyweight. (Last year, Japan exported more than $ 40 billion worth of cars and auto parts to the United States.)
Rather implausibly, the United States has asserted that auto imports pose a threat to national security and thus may restrict imports of foreign cars, including those made in Japan. (Germany is also in the spotlight, but that’s another story.) The United States has proposed to do so by imposing high tariffs on Toyota, Honda, Nissan, etc.
The 25 percent figure sent shockwaves across Japan. The auto industry is a key sector of the economy, and any significant drop in exports would result in significant job losses in the auto and auto parts industries.
The threat of high tariffs therefore cannot be taken lightly by Japan. But what does the United States want in return for removing the sword of Damocles?
Mainly, a reduction in the bilateral trade imbalance between the United States and Japan, aided by lower tariffs on American agricultural products.
For Trump, getting farmers’ votes is an important part of his re-election campaign. But a similar political imperative is also at play in Japan: Japanese farmers have political influence, and Prime Minister Abe will face considerable resistance to open up the protected agricultural sector to foreign competition.
These heated trade negotiations have exposed the cost of hastily withdrawing from trade agreements. If the United States had stayed in the TPP, it would have automatically received most of the benefits that the Trump administration is now fighting for. Even if a trade deal with Japan is struck, the United States will still have to negotiate with the other ten CPTPP members to secure similar terms from the rest of the group.
In the case of the now-abandoned North American Free Trade Agreement, a revised version should take its place, but not without fear and resentment, as the United States essentially forced Canada and Mexico to the table. negotiations. The USMCA, as the new agreement is called, is not much different from the old one and has yet to be ratified by Congress.
The interplay of economic forces and political considerations makes trade negotiations difficult. But it is possible to see a favorable outcome in the US-Japan case: a trade agreement under which US agricultural exports to Japan will increase, and the US auto market remains open to Japanese manufacturers.
So, perhaps after all, the American consumer with a yen for Japanese imports may not have to worry that Toyota and Honda will become significantly more expensive in the near future. It all depends, of course, on the good choices made by Washington and Tokyo.
Sanjay Paul is Associate Professor of Economics at Elizabethtown College