<![CDATA[Japanese carmakers can't shake off fears of Donald Trump's tariff threats]>

Japan's carmakers are not resting easy, despite recent suggestions that US President Donald Trump and Prime Minister Shinzo Abe could announce some sort of quid pro quo agreement, where Japan gives American farmers new access to its market in exchange for reduced tariffs on certain Japanese auto parts, in September.

Given the unpredictability of the US administration on trade issues, concerns remain that crippling tariffs could be imposed on the auto sector, Japan's biggest manufacturing industry.

Japan's auto exports have long been in the president's cross hairs as he reiterates his "America First" slogan. And with the US election less than 18 months away, a philosophy of more jobs for workers at home and socking one to a foreign rival is likely to appeal to his core supporters. Cars are an easy mark, admits Koji Endo, an auto-sector analyst with SBI Securities in Tokyo.

"There's no doubt in my mind that the industry here should be concerned. The United States has a US$70 billion trade deficit with Japan and around US$50 billion of that is from autos. And it has been like that for the last five years at least.

"When the deficit is at that level, then it is possible that the administration might well do something against autos," he said.

But, he added: "It is also true that President Trump and [US Trade Representative Robert] Lighthizer gave the Japanese government a moratorium earlier this year, telling Tokyo that they would postpone a final decision on tariffs until November."

The US had threatened to raise tariffs on Japanese vehicle imports from 2.5 per cent at present to 25 per cent, a move that many believe would pummel the world's third-biggest economy amid a global slowdown. Already, business confidence has faltered on the back of falling exports as the US-China trade war continues.

"If Japanese companies face a 25 per cent tariff on their exports, that will obviously have a huge negative impact on their operations in the US," Endo said.

As well as making every single Japanese import significantly more expensive for the consumer, analysts believe that such tariffs would cut exports in half and reduce Japan's gross domestic product by 0.5 per cent. Restrictions would also hit employment hard, with more than 860,000 people directly working in Japan's auto sector. When auto retailers, repair shops and other related industries are included, the number of people reliant on the car sector soars to 5.4 million, government figures show.

The Japanese government has not made an official comment on suggestions that Trump is readying tariffs " perhaps because it has concluded that disputing the president's declarations is a sure-fire way of inviting more unwanted attention to the issue " but it did believe that it had avoided the matter entirely in February, when Trump hinted that he might grant himself new powers by declaring imports a matter of national security.

Toshimitsu Motegi, the minister in charge of trade negotiations with the US, announced that Trump had promised Abe that he would not impose any additional tariffs on Japanese vehicle imports. The key term in the promise wrung out of the president, however, may have been "in the near future".

The Japan Automobile Manufacturers' Association (JAMA) appeared to be less convinced by the promise, although its chairman Akio Toyoda in a statement at the time emphasised the benefits that Japanese auto manufacturers bring to the US and said he hoped Trump would choose a course of action that remains beneficial to both nations.

Japan Automobile Manufacturers' Association chairman and Toyota Motor Corp president Akio Toyoda says imported vehicles help expand and diversify the choices available to US customers. Photo: Reuters alt=Japan Automobile Manufacturers' Association chairman and Toyota Motor Corp president Akio Toyoda says imported vehicles help expand and diversify the choices available to US customers. Photo: Reuters

"As such, these vehicles clearly do not threaten US national security," said Toyoda, who is also president of Toyota Motor Corp.

"Introducing import restriction measures would not only negatively affect our US customers, but would also disrupt the operations of US vehicle and auto parts manufacturers as well as auto dealerships. Adverse effects on the US economy and American jobs should be avoided.

"We share the administration's goals of creating more American jobs and growing the US economy, and therefore would like to continue the pursuit of our business activities rooted in the US," he said.

Japanese car companies have 24 manufacturing plants and 45 research and development centres across 19 US states, directly employing more than 93,000 people. JAMA statistics suggest that a total of 1.52 million jobs in the US are supported by Japanese carmakers.

In May, Toyoda was moved to make another statement saying he was "profoundly disappointed" that the president had gone ahead with his threat to declare imported vehicles and parts a "threat" to the national security of the US.

"We are dismayed to hear a message suggesting that our long-term contributions of investment and employment in the US are not welcomed," he added. "As chairman, I am deeply saddened by the decision."

JAMA declined to make a new comment about the state of trade relations with the US, although a spokesman for Toyota, Japan's largest carmaker, agreed to issue a statement.

"As the automotive industry faces sweeping, once-in-a-century changes, we believe that upholding a free and fair trade framework is essential for boosting the competitiveness of the automotive sectors in both Japan and the US," the official said.

Japanese car companies have 24 manufacturing plants and 45 research and development centres across 19 US states, directly employing more than 93,000 people. Photo: AFP alt=Japanese car companies have 24 manufacturing plants and 45 research and development centres across 19 US states, directly employing more than 93,000 people. Photo: AFP

"We are hoping for an agreement that will facilitate the sustainable development and boost the international competitiveness of the automobile industries in both Japan and the US ... We intend to closely monitor the status of the negotiations."

Endo from SBI Securities said Japanese car manufacturers had watched with concern as Trump tore up the North America Free Trade Agreement, and had been working hard in recent years to increase the number and scale of their facilities in the US to underline to the president just how important a role they play in the national economy.

"But it's not just the car exports that we're talking about now," he said, shaking his head. "There are a lot of domestic politics that has to be taken into account now as well."

Not everyone is as pessimistic about the auto sector's outlook in the US, however, with economist Martin Schulz suggesting that exercising the "nuclear option" might come back to haunt Trump.

"Yes, we're getting into the hot phase in trade negotiations again, but cars are the main bazooka that the US has in its repertoire against Japan simply because the auto industry here is the most important in Japan and accounts for so much of the nation's exports to the US," said Schulz, senior economist for the Fujitsu Research Institute in Tokyo.

"Because a direct threat to the auto industry is the 'nuclear option' and the strongest weapon for the US, that is the reason it is least often deployed."

Ultimately, Schulz believes, Trump will pull back from the threat of increased tariffs on Japanese cars "because it's not good strategy".

This article originally appeared on the South China Morning Post (SCMP).

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