Japan’s Surging Car Exports Raise Risk of Trade Fight With Trump

April 19, 2018

TOKYO—There’s a big reason why Japan doesn’t want to talk about a trade deal with Donald Trump: Its auto exports are booming.

[Sean McLain | April 19, 2018 | WSJ]

Japanese auto makers exported nearly 10% more cars to the U.S. in the first three months of this year compared with the same period a year earlier, according to trade figures released this week in Tokyo around the time the U.S. president was dining at his Florida resort with Prime Minister Shinzo Abe.

The value of Japan’s car exports to the U.S. has nearly doubled in six years to more than $40 billion, driven by American hunger for sport-utility vehicles, whereas only a tiny number of American-made cars are sold in Japan.

“Japan sends us million and millions of cars, and we tax them virtually not at all. And we don’t send so much product because we have trade barriers and lots of other things,” Mr. Trump said Wednesday at a joint press conference with Mr. Abe.

Mr. Trump’s view sets up a clash between the two allies over how to proceed with trade talks.

Mr. Abe has called on the U.S. to join the Trans-Pacific Partnership trade deal, which has already been signed by 11 nations including Japan. But TPP, a deal to lower tariffs and other trade barriers, would do little to change the car-trade imbalance because Japan already has no tariffs on imported cars.

That is why Mr. Trump is demanding a bilateral deal with Tokyo that could zero in on the $69 billion U.S. trade deficit with Japan. “What I really prefer is negotiating a one-on-one deal with Japan,” he said at the news conference.

Tokyo agreed to engage in two-way talks, to be led by U.S. Trade Representative Robert Lighthizer and Japan’s economy minister, Toshimitsu Motegi. Mr. Abe said he would keep making the case that “TPP is best for both countries.”

The car-trade imbalance has lasted for decades—and so has Mr. Trump’s irritation with it.

“For Trump, with Japan, this goes back to the ’80s. I mean, he’s been pounding this,” said Robert Zoellick, a former U.S. trade representative who is now chairman of asset manager AllianceBernstein. “It’s symbolic of the resentments that he has tapped into about American manufacturing being hollowed out because of bad trade policies that gave away American interests.”

The U.S. share of the Japanese car market is less than 1%. Ford Motor Co. pulled out of Japan in 2016, saying it saw “no path to sustained profitability.”

Japanese buyers cite a host of reasons for not wanting to buy American cars, including perceptions that they are less reliable. Also, American car companies don’t make many of the small, fuel-sipping models that are popular in Japan. Detroit cites other barriers such as unique safety standards and zoning rules that make it hard to set up dealer networks.

To ease tensions and reduce foreign-exchange risk, Japanese auto makers have long been building factories in states such as Kentucky, Ohio, Tennessee and Texas. The greater part of cars on Toyota, Nissan and Honda dealer lots in the U.S. come from those factories.

Yet a significant minority still get shipped over from Japan, and the proportion has been rising because the U.S. factories are weighted heavily toward sedans. As U.S. car buyers have shifted toward roomier crossover SUVs, Japanese car companies have compensated by making more in factories at home that have leeway to boost production.

Toyota Motor Corp. makes more than half of the RAV4 sport-utility vehicles sold in the U.S. at Japanese factories. The company said it has continuously boosted U.S. production, but American consumer trends sometimes forced it to turn to imports.

“To satisfy demand, we had to import RAV4 from Japan,” said Toyota spokesman Jean-Yves Jault. “Our policy to localize production as much as possible where the cars are sold has not changed.”

Many of Nissan Motor Co.’s Rogue crossover SUVs at U.S. dealers come from a factory on the southern Japanese island of Kyushu. The figure has been unusually high recently with the introduction of the smaller Rogue Sport, which went on sale in May 2017, said a Nissan spokesman. Nissan’s exports to the U.S. rose by a third last year largely as a result of the introduction of the new model, he said.

Overall, Japanese car makers shipped 1.76 million cars to the U.S. in the year ended in March, accounting for about 30% of Japan’s total exports to the U.S. by value.

For Japan, the importance of the car industry far outweighs the steel industry, which Mr. Trump recently hit with 25% tariffs. Japanese officials said the damage from the steel tariffs would be minimal, but the same couldn’t be said if the president tried something similar with Japanese cars.

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