The recent decision by U.S. President Donald Trump to impose tariffs on imports from Mexico and Canada has raised concerns among Japanese companies. Many Japanese automakers and parts manufacturers have production bases in these two countries, exporting a large portion of their products to the United States. If the tariffs go into effect, these companies may face serious financial and operational challenges.
Japan’s Major Automakers in Mexico and Canada
Several major Japanese automobile companies have set up production plants in Mexico and Canada. These include Toyota, Honda, Nissan, and Mazda. These plants manufacture vehicles that are then shipped to the U.S. market. In addition to car manufacturers, many auto parts suppliers also operate in these regions. For example, Toray Industries, Inc. produces airbag fabric in Mexico, while JFE Steel Corp. runs a plant that processes high-quality steel for vehicles.
The Japan External Trade Organization (JETRO) reports that in 2023, Nissan produced about 620,000 vehicles in Mexico, with around 40% of them being exported to the United States. Toyota manufactured about 250,000 cars in Mexico, sending 90% of them to the U.S., while Honda produced 170,000 vehicles, exporting 80% to the same market. These figures highlight how dependent Japanese automakers are on trade with the U.S.
How Tariffs Could Affect Japanese Companies
If the U.S. moves forward with these tariffs, it will increase costs for Japanese automakers that rely on Mexican and Canadian factories. A 25% tariff on imported vehicles could make cars manufactured in these countries much more expensive when sold in the U.S. As a result, companies might struggle to keep prices competitive.
The potential impact of these tariffs is significant. Kenichi Kawasaki, a professor at the National Graduate Institute for Policy Studies, has estimated that Mexico’s annual car exports to the U.S. could fall by $65.5 billion (about ¥10 trillion), while Canada’s auto exports could decrease by $43.3 billion. These losses would not only hurt Japanese companies but also damage the economies of Mexico and Canada.
Uncertainty About the Future
The uncertainty surrounding these tariffs has left automakers in a difficult position. If the tariffs become permanent, companies may be forced to move their production to countries that are not affected by the trade restrictions. However, many executives are unsure about making such a major decision.
One executive from a leading Japanese automaker explained the dilemma:
“During Trump’s first term, we had to prepare for the possibility of eight years of his policies. This time, it is only four years, so we need to think about different scenarios before making a decision.”
Honda’s Executive Vice President Shinji Aoyama also shared his concerns:
“The impact would be huge. If the tariffs are permanent, we will have to consider producing vehicles in countries that are not subject to the tariffs in the long run.”
Japanese automakers also have manufacturing plants in Canada. If tariffs are imposed on imports from Canada as well, companies like Toyota and Honda could face even greater difficulties.
Possible Solutions for Japanese Companies
To avoid heavy losses, Japanese car manufacturers may need to consider several options:
Shifting Production to the U.S. – Some companies might move their factories to the U.S. to avoid paying tariffs. However, setting up new production facilities is costly and takes time.
Exploring Other Markets – Japanese automakers might increase their focus on other regions, such as Europe and Asia, to reduce their dependence on the U.S. market.
Negotiating with the U.S. Government – Japan’s government and business leaders may try to engage in talks with the U.S. administration to seek exemptions or reduced tariffs.
Adjusting Prices – Companies might pass on some of the increased costs to consumers by raising car prices, though this could reduce demand.
Japan’s Government Response
Recognizing the serious challenges posed by these tariffs, the Japanese government is stepping in to assist companies. The Economy, Trade, and Industry Ministry has set up a special consultation service to help businesses deal with the situation.
This service, created in partnership with JETRO, will provide guidance to Japanese companies on how to handle the tariff situation. JETRO’s offices in the United States, Canada, Mexico, and China, along with its 49 offices in Japan, will work together to collect information and support affected businesses.
The Japanese government is also expected to discuss trade concerns with U.S. officials in the coming months. Japan has long maintained strong trade ties with the U.S., and government officials will likely seek ways to protect Japanese businesses from the negative impact of these new tariffs.
Conclusion
The U.S. decision to impose tariffs on imports from Mexico and Canada has created significant challenges for Japanese automakers and parts suppliers. Since many Japanese companies rely heavily on exports to the U.S., these new trade barriers could lead to higher costs, production shifts, and economic losses.
