Why Japanese autos might become more attractive to U.S. customers

A day after the United States reached a trade deal that imposes a 15 % tariff on imports from Japan, President Donald Trump declared that U.S. business would “BOOM.” But early reads from auto analysts paint a murkier picture – if anything, some experts say, Japanese companies may benefit more than their rivals for now.

“I do think the 15% tariff on vehicles imported from Japan is unfair for American automakers especially if the latter are paying a 25% tariff on their Mexican and Canadian production exported to the US,” Morningstar Research analyst David Whiston wrote in an email to The Washington Post.

Trump announced Tuesday that the U.S. had reached a “massive” deal with Japan to levy 15 % tariffs on Japanese imports – including automobiles and auto parts – instead of the 25 % rate he threatened earlier this month. In exchange, Japan will remove trade barriers for U.S. auto and agricultural imports and invest $550 billion in the United States. It was the latest trade agreement the Trump administration has announced in recent weeks, as it races to complete deals with scores of countries it has threatened with high levies.

“This Deal will create Hundreds of Thousands of Jobs – There has never been anything like it,” the president wrote on his social media site, Truth Social.

The Big Three U.S. automakers – General Motors, Ford and Stellantis – do not share Trump’s confidence.

Matt Blunt, president of the American Automotive Policy Council, a lobbying group that represents the three automakers, said it was still reviewing the deal. But Blunt, a former Republican governor of Missouri, said in a statement that an agreement that has Japanese automakers paying a lower tariff rate on their imports than U.S. companies pay for parts “is a bad deal for U.S. industry and U.S. auto workers.”

White House spokesman Kush Desai characterized the trade deal partly as a way to improve U.S. automakers’ access to the Japanese and Indonesian markets and said other initiatives backed by Trump, such as tax cuts and deregulation, would help the domestic auto industry.

“No president has taken a greater interest in restoring the American auto industry’s dominance than President Trump, and his Administration is working closely with the auto industry to achieve this goal,” Desai said in a statement.

Since the Trump administration threatened sweeping tariffs on most trade partners – including close allies such as Mexico and Canada – the U.S. auto industry has been trying to adjust. Supply chains cross multiple borders, particularly in North America, where goods from Mexico and Canada are subject to 25 % tariffs.

Manufacturers with U.S. operations have felt the impact. GM said Tuesday that tariffs cost it $1.1 billion in the second quarter. Stellantis – whose brands include Chrysler, Dodge, Fiat and Jeep – said it faced about $350 million in tariff costs in the first half of the year.

Car prices suggest that automakers have absorbed much of the tariffs for the moment rather than passing them on to buyers. Kelley Blue Book data for June shows the cost of a new vehicle rose 1.2 % year-over-year to $48,907. While that’s the largest year-over-year growth of any month this year, it remains well below the average 10-year increase of 3.9 %.

Jonathan Smoke, chief economist at Cox Automotive, said vehicles assembled in the U.S. will see the least added cost under the current trade regime, adding as much as 4 %, or about $2,000, to what consumers pay. Many models – including Toyota Camrys and Ford Broncos – are assembled in the United States.

But many cars are assembled in Mexico and Japan. Cox estimates that consumers will pay an added 9 %, or $3,010, for cars assembled in Japan, which include some Toyota models, such as the Prius and the 4Runner. Vehicles assembled in Mexico will see the highest costs to consumers – about 10 % or $3,550 – according to Cox. Those include the Chevrolet Equinox and the Ford Maverick.

“It looks like the Japanese assembled vehicle gets friendlier treatment than vehicles assembled in North America outside of the U.S., but vehicles assembled in the U.S. receive the least amount of added costs from tariffs,” Smoke wrote in an email.

Other analysts agreed that Japanese companies could have a near-term advantage.

“Having this agreement in place before any other foreign automakers gives Japan a near-term advantage in terms of cost, even compared to some domestic U.S. product with a high degree of both foreign production and parts content,” Karl Brauer, executive analyst at iSeeCars, wrote in an email to The Washington Post. “It also allows Japan’s automakers to plan for future assembly plant and parts supplier locations.”

Autos Drive America, which represents foreign automakers in the U.S., said it was “encouraged” by news of the Japan trade deal.

“International automakers have invested more than $124 billion in their U.S. operations over the past thirty years, and the certainty provided by this agreement allows them to plan for greater investment, bringing even more production to our shores and providing affordable options for American consumers.” Jennifer Safavian, president and CEO of Autos Drive America, said in a statement.

U.S. businesses may thrive in the long run, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. If North American tariffs settle at 25 percent, U.S. companies “will move a lot of their manufacturing and assembly to the U.S. from Mexico and Canada,” Gordon said in an email.