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U.S. Seeks to Boost Auto Exports in U.S.-Japan Trade Deal

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf


U.S. Seeks to Boost Auto Exports in U.S.-Japan Trade Deal

US automakers have long been shut out of the Japanese market because of what they charge are protectionist and burdensome policies, but President Donald Trump is hoping to change that through a bilateral trade deal with the Asian nation.

Some auto analysts, however, question whether a bilateral trade deal would be meaningful for American auto producers, which face intense competition from Japanese carmakers and a lack of demand from Japanese consumers.

Trump and Japanese Prime Minister Shinzo Abe have both agreed to hold talks to deepen their trade relationship, but the two leaders are pushing for different deals to achieve that goal. Trump supports a bilateral free trade deal with Japan alone, while Abe is pressing for the U.S. to rejoin the 11-country Trans-Pacific Partnership, or TPP, trade pact.

U.S. auto exports, including those from the big three American automakers — Ford Motor Co., Fiat Chrysler Automobiles NV and General Motors Co. — accounted for just 1% of exports to Japan in the year leading up to Feb. 28, according to Panjiva Inc., a division of S&P Global Market Intelligence.

The Japanese Automobile Dealers Association said sales of imported vehicles in 2017 totaled just 351,020 units, a figure that is much lower than the individual unit sales of domestic producers Toyota Motor Corp., Nissan Motor Co. Ltd. and Honda Motor Co. Ltd. last year.

Toyota sold more than 1.5 million vehicles in Japan in 2017, according to the association, far and away the most popular car brand in the country, followed by Nissan with about 393,000 and Honda with about 379,000 vehicles sold. Total new car sales for Japanese domestic manufacturer sales was 2,901,125 units.

Vehicle imports, at $50 billion, was the largest Japanese import category to the U.S. in 2016, according to the Office of the U.S. Trade Representative. Japan was the United States' fourth-largest trading partner in 2017, accounting for $204.2 billion in two-way trade, according to the U.S. Census Bureau.

With the two leaders set to hold trade talks in the near future, experts have begun to weigh in on what a bilateral trade deal would mean for U.S. automakers, with some saying new benefits for U.S. auto exports in a trade pact with Japan might not remedy the current barriers for American companies.

Those trade barriers, according to Gary Hufbauer, nonresident senior fellow at the Peterson Institute for International Economics, include onerous safety and emissions tests that would need to be harmonized as well as the fact that larger U.S. cars do not sell well in the Asian nation due to a lack of demand.

"The SUVs don't sell well in Japan," Hufbauer said. "The biggest barrier is that the U.S. firms aren't making autos that appeal to the Japanese. If we did actually have a bilateral agreement ... I think [U.S. automakers] would have to produce models that would appeal to Japan."

Select vehicle sales by manufacturer in Japan in 2017

Maker Units Sold
Toyota 1,584,849
Nissan 393,349
Honda 378,848
Imported Cars 351,020
Mazda 170,907
SUBARU 144,143/td>
Suzuki 103,812

Data compiled April 24, 2018.
Excludes special cars and trailers.
Source: Japanese Automobile Dealers Association

Rebecca Lindland, an executive analyst for Kelley Blue Book, said in an interview that the lack of appeal for U.S. cars is due to Japanese consumers' strong preference for domestic brands, a factor that she does not feel would change even if the U.S. and Japan forge ahead on a bilateral trade pact.

"I really don't think it will have an effect at all," Lindland said of a potential trade pact. "Their domestic brands are incredibly strong, and the other challenge in Japan is that they have a very significant aging economy and aging population. Younger people show even less interest in driving in urban areas like Tokyo and Kyoto."

GM, Ford and Fiat Chrysler declined to comment, but the American Automotive Policy Council, which represents the big three U.S. automakers, has called Japan the "most protected and closed auto market in the industrial world."

The council has said that a number of underlying circumstances, including agreements between the Japanese government and Japanese producers and burdensome technical regulations, have led to a "rigged" market that has made penetrating the Japanese market nearly impossible.

Chris Rogers, research director for Panjiva, said that even if changes were made to the existing conditions, consumer preference is not guaranteed to change along with it.

"Cutting the trade barriers doesn't necessarily mean local buyers in Japan ... would necessarily want to actually buy the cars that Ford et al have to sell," Rogers said. "Local consumer tastes, including vehicle size particularly for urban environments, matter more than the technicalities of comparable safety standards."

"Put another way, a liberalization of trade rules won't necessarily lead to commercial success for Ford or GM," he said.

Top five exports to Japan from the US in 2016

Export Amount ($B)
Aircraft 7.9
Optical and medical equipment 6.9
Machinery 6.3
Electrical machinery 5.0
Pharmaceuticals 3.8

Data compiled April 20, 2018.
Source: U.S. Trade Representative's Office

Top five US imports from Japan in 2016

Import Amount ($B)
Vehicles 50.0
Machinery 29.0
Electrical Machinery 16.0
Optical and medical equipment 6.5
Aircraft 4.5

Data compiled April 20, 2018.
Source: U.S. Trade Representative's Office

On April 19, Trump, speaking at his Mar-a-Lago estate in Palm Beach, Fla., in a joint press conference with Japanese Prime Minister Shinzo Abe, railed about restricted export access to Japan for U.S. autos.

"Japan sends us millions and millions of cars, and we tax them virtually not at all," Trump said. "And we don't send so much product because we have trade barriers and lots of other things. So these are the things that the prime minister and I are going to be discussing over the next short period of time."

Abe said Japan is "aware" of the United States' interest in a bilateral deal, but pushed for talks instead to be centered on the trade pact, which Trump withdrew the U.S. from in his first days in office in January 2017.

"Our country's position is that TPP is the best for both of the countries," Abe said. "And based on that position, we shall be dealing with the talks."

The Nikkei Asian Review reported April 24 that talks between the countries are slated to begin in June, but the trade representative's office declined to confirm when formal discussions will begin.

Hufbauer said that even if the U.S. and Japan were to reach a deal, he does not believe it would be negotiated and voted on in 2018. Should Democrats take over one chamber of Congress in the fall midterm elections, as they are projected to do, Hufbauer said he does not anticipate them voting for a Trump-led trade negotiation.

"I think it's down in the 10% range," Hufbauer said. "It's a very low probability. Not impossible, but quite low."



Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Communications providers are working to restore services in areas impacted by Hurricane Michael, but storm debris, power outages and significant fiber damage are hindering progress in those counties most devastated by the storm.

As of Oct. 14, a number of counties along the Florida Panhandle had more than half of their cell sites down, including Bay County — home of Panama City and Mexico Beach, described as "ground zero" of the storm by U.S. Federal Emergency Management Agency administrator Brock Long — where 66.1% of cell sites were down. Similarly, neighboring Gulf County had 69.6% of cell sites down, according to data from the U.S. Federal Communications Commission.

Based on the amount of damage in the area and ongoing power outages, it could be weeks before services are restored. Long said Oct. 12 that after search and rescue, restoring communications in impacted counties is among FEMA's top priorities.

"You have to be able to communicate to appropriately respond and we are trying to do everything we can to get the private sector vendors, the Verizon [Communications Inc.]'s of the world, to get in to try to get their systems back up and running," he said.

Long added, however, that the process is not easy. "There was a tremendous amount of debris. When you look at the damage in Mexico Beach, that is where the ocean rose potentially 14 feet … and shoved buildings out of the way. When you have that type of damage, it takes time to get in and go through," he said.

Hurricane Michael made landfall Oct. 10 near Mexico Beach as a Category 4 hurricane with 155-mile-per-hour winds.

For its part, Verizon said the "vast majority" of Florida and Georgia service has been restored, with 99% of the company's network in Georgia in service and 97% of its network in Florida. But the company noted there are pockets, particularly near Panama City, where the damage is severe.

"The storm caused unprecedented damage to our fiber, which is essential for our network — including many of our temporary portable assets — to work. Our fiber crews are working around the clock to make repairs, and while they are making good progress, we still have work to do to get the fiber completely repaired," the company said Oct. 14.

Fiber is the connecting component of a network that carries data from point to point. It is necessary for Verizon's permanent and temporary cell sites to be operational. The company noted that while it has multiple fiber paths to carry data, "The severity and intensity of the storm caused damage to all duplicate routes in the Panama City and Panama City Beach area."

In terms of wireline services, the FCC said 291,300 subscribers remain out of service as of Oct. 14, including 205,643 subscribers in Florida. The figures were down from a day earlier, when a total of 337,223 subscribers were without service, including 233,843 in Florida.

The top residential video and broadband provider in Bay County is Comcast Corp., according to MediaCensus data from Kagan, a research group within S&P Global Market Intelligence. Comcast, the largest cable operator in the U.S., said in an Oct. 12 statement that it is working to get Xfinity services back online.

"As power returns … and it becomes safe for our technicians and restoration crews, we will work to repair any damages affecting our network," the company said.

As of Oct. 15, more than 162,000 customers in Florida remained without power, including all 27,275 customers served by Gulf Coast Electric Cooperative. The cooperative said in an Oct. 12 Facebook Inc. post that its distribution system "suffered catastrophic damage"

In Gulf County, the top residential video provider is AT&T Inc.'s satellite video service DIRECTV, according to MediaCensus data, while the top residential broadband provider is Mediacom Communications Corp., the fifth-largest cable operator in the U.S.

Mediacom said Oct. 14 that its recovery efforts are underway but its network in Florida has 14 miles of severely damaged fiber near Walton County, as well as 25 miles of damaged fiber east of Panama City that is obstructing video transmission from Gulf County to Walton County.

"Our current priority remains focusing on repairing damage to our high-speed data transport network and main transmission facilities and repairing downed lines where we have access to the area. We have outages from widespread loss of commercial power along with downed lines, and structural damage throughout our systems," the cable operator said.



Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Houston, Oct. 11 2018 — Hurricane Michael made landfall at the Florida panhandle as a Category 4 hurricane Wednesday with 155 mph winds, quickly destroying demand for power, natural gas and refined oil products. Shut-in oil production rose modestly from Tuesday to over 700,000 b/d, but the storm has stayed east of much of the region's production, which means supply should be back online quickly.

Meanwhile, the severity of the storm has surprised to the upside, which could a mean longer lasting and more severe impact on demand for power, natural gas, refined products and ultimately crude oil.

"We expect the impact on refined products demand to be below that of previous hurricanes in the Gulf Coast such as Harvey in 2017, as the region impacted by Michael has lower population density than Houston ... Nevertheless, the impacts are favoring the high side of our estimates given the sheer severity of the storm," said Claudio Giamberti, Head of Demand and Refining at S&P Global Platts Analytics.

As of 7 pm EDT, the eye of Michael was moving over southwestern Georgia with maximum sustained winds still at 100 mph, according to the National Hurricane Center. The storm is expected to move northeast across the Carolinas before heading back out to sea Friday morning.



Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Highlights

Florida, Georgia, Carolinas hardest hit

Peakloads down about 20% on week

Houston, Oct. 11 2018 — As the remnants of Hurricane Michael churned through the South Thursday, it cut power to more than 870,000 customers, shaving large chunks off daily peakloads and, while more than 30,000 technicians began working to restore service.

The center of Tropical storm Michael was about 25 miles south of Greensboro, North Carolina, as of 2 pm EDT Thursday, the National Hurricane Center said. It still had maximum sustained winds of 50 mph, moving northeast at 23 mph with an expected move offshore from southeastern Virginia Thursday night.

Since it made landfall near Mexico Beach on the Florida Panhandle between 1 pm and 2 pm EDT Wednesday, the storm left more than 860,000 people without power, but some of those services have been restored.



Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf

Houston, Oct. 09 2018 — With Hurricane Michael expected to make landfall on the Florida Panhandle as a Category 3 storm Wednesday, offshore oil and gas producers were busy evacuating crews and shutting in production Monday. By mid-day, nearly 20% of Gulf of Mexico oil production had been taken offline. That number will likely have risen when reported Tuesday as operators continued to shut down platforms Monday afternoon.

Meanwhile, just 24 days after Hurricane Florence made landfall, electric utilities were gearing up for Hurricane Michael restoration efforts by staging crews and supplies in the storm's path. Lost power demand is likely to have a knock-on effect on natural gas demand and prices.

After it brings over 100 mph winds to the western-most portion of Florida, Hurricane Michael is expected to turn northeast, bringing wind and rain to Alabama, Georgia and the Carolinas before heading back out to sea. Thiis article covers the key takeaways across commodities.