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

S&P Global Market Intelligence
Written By: Chris Hudgins and Evan Fallor
S&P Global Market Intelligence
Written By: Chris Hudgins and Evan Fallor

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."