The United States and Japan have finalized a trade deal in what President Trump calls a “massive” victory, according to Reuters. As part of the agreement, Japan will reportedly invest $550 billion into the US over the next few years, with the US set to receive “90 percent of the profits,” according to President Trump.
The joint agreement also lowers tariffs on Japan from the proposed 25 percent to just 15 percent, as confirmed by Japanese Prime Minister Shigeru Ishiba. The lowered tariffs will directly affect the import of agricultural products like rice, but most importantly, cars and trucks.
In response to the new deal, Japan’s largest automakers saw huge single-day gains in the stock market. Honda and Nissan rose by 8 percent, Toyota jumped by 11 percent, Mitsubishi improved by 13 percent, and Mazda stocks saw the biggest increase, climbing by as much as 17 percent.
The question is: How exactly will this deal affect the American auto industry moving forward?
Great for Trump, Good For Japan—Bad for Detroit?
Photo by: Getty Images
On the surface, at least, the proposed agreement appears beneficial for both parties—with the US getting the slight edge.
If we’re to believe President Trump’s Truth social posts, the US will receive the aforementioned “90 percent” of profits from Japan’s $550 billion investment. That will supposedly create “hundreds of thousands of jobs” in the process, the president added.
That said, many of the details remain murky for the time being. We’ll likely know more of the specifics as the year goes on.
Last year, auto exports into the US from Japan made up 28.3 percent of all shipments. That number dropped to 24.7 percent in May, and rose slightly to 26.7 percent in June.
In total, Japan exported $70.34 billion (¥10.3 trillion) worth of goods to the US between January and June, which marked a slight 0.8 percent decrease compared to the previous year.
That said, not everyone is happy with the proposed deal, according to CNBC. Head of the American Automotive Policy Council (AAPC), Matt Blunt—which represents Ford, General Motors, and Stellantis—released a statement saying:
‘Any deal that charges a lower tariff for Japanese imports with virtually no US content than the tariff imposed on North American-built vehicles with high US content is a bad deal for US industry and US auto workers.’
Ford, General Motors, and Stellantis each have manufacturing plants in Canada and/or Mexico. President Trump has already proposed 35 and 30 percent tariffs for imports from those countries beginning on August 1. That means manufacturers importing parts for production in the US would theoretically see higher costs.
The AAPC released a similar statement earlier this year following Trump’s negotiation of a 10-percent tariff on imports from the UK, saying: “This hurts American automakers, suppliers, and auto workers.”
Some automakers are already feeling the pressure from tariffs. GM just recently announced a $1.1 billion hit, and the company expects that number to worsen going into quarter three. Stellantis, meanwhile, announced a $352 million (€300) loss due to tariffs, forcing cutbacks in manufacturing and shipping.
With the August 1 deadline for tariff negotiations looming, President Trump says that negotiations with other markets are still ongoing.
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