See More on Facebook

Economics

Japan carmakers brace for new NAFTA

The revised NAFTA deal that the United States, Mexico and Canada agreed to on Sunday is expected to have a significant impact on Japanese automakers.


Written by

Updated: October 3, 2018

The Japanese government is wary that the United States will impose a difficult set of demands in bilateral negotiations over a trade agreement on goods (TAG), using the same tactics it employed in the latest NAFTA renegotiations.

Stricter procurement rules

Japanese automakers use Mexico as an export base to the United States, taking advantage of the country’s low labor costs. They procure auto parts from various countries to minimize costs and assemble the final products in Mexico. U.S. auto sales in 2017 totaled about 17.5 million units, about 40 percent of which were Japanese vehicles.

Four Japanese makers — Toyota Motor Corp., Honda Motor Co., Nissan Motor Co. and Mazda Motor Corp. — have assembly lines in Mexico. They produced 1.37 million vehicles in 2017, and exported about 680,000 of them to the United States.

Under the current NAFTA framework, at least 62.5 percent of a vehicle’s parts must be procured within the three NAFTA countries for the vehicle to be exported to other member countries tariff-free. However, under the revised NAFTA deal, called the United States-Mexico-Canada Agreement (USMCA), the percentage of parts required for tariff-free exports will be raised to at least 75 percent.

In just one example of the deal’s effects, Honda will be required to review production of its Mexico-made HR-V sport-utility vehicle (known as Vezel in Japan), as 67 percent of components in the vehicle are procured in the NAFTA zone.

According to the new agreement’s text, the rate will be hiked either by January 2025 or five years after the new agreement takes effect, whichever comes later.

Ceiling on exports

The new agreement will impose a stiff tariff — expected to be 25 percent — if the number of cars exported annually from Mexico or Canada to the United States exceeds 2.6 million. The measure will decrease cost competitiveness, and likely have an impact on export volumes.

According to Reuters, about 1.8 million cars and sport-utility vehicles were exported from Mexico to the United States in 2017. Light trucks are exempted from this rule, offering a bit of leeway before Mexico reaches its export ceiling. However, Japanese automakers have made efforts to cut costs, and their exports from Mexico had been expected to increase.

“We’ll be pressured to review our current strategy of simply increasing production in Mexico, where we can produce cars at low cost,” an executive of a Japanese automaker said.

Meanwhile, Japanese automakers have established a supply chain in the vicinity of the Great Lakes in Canada and the United States.

In 2017, Toyota sold 2.4 million vehicles in the United States and exported about 450,000 cars from Canada to the United States. Canada’s auto exports to the United States will not soon reach the 2.6 million limit, but Toyota cannot indefinitely increase exports from Canada. Japanese automakers are expected to review their management strategies over time.

Taste of what’s to come?

In NAFTA negotiations, U.S. President Donald Trump threatened to impose a 25 percent tariff and forced Mexico and Canada to accept rule changes that increase production and employment in the United States in an effort to reduce trade deficits. It is highly likely the United States will take a similar approach in TAG negotiations with Japan.

The Japanese government is concerned the United States will demand controlled trade in the automobile sector, just as it did in the NAFTA revision. The United States successfully included in the USMCA the establishment of a macroeconomic committee to take up the issue of foreign exchange rates — a move aimed at slowing currency depreciation and, thus, gaining an export advantage.

If a similar system is introduced between Japan and the United States, it will inevitably constrain Japan’s monetary easing policy, which pushes down the value of the yen.

Japanese government officials are increasingly concerned upcoming negotiations with the United States will prove difficult.

“After the United States experienced success [with USMCA], there’s no doubt that its negotiations with Japan will be tough,” said Mizuho Research Institute Ltd. economist Tamako Nishikawa.



Enjoyed this story? Share it.


The Japan News
About the Author: The Japan News is published by The Yomiuri Shimbun, which boasts the largest circulation in the world.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Economics

South Korea PM’s Japan visit a chance to mend ties

The two countries have not seen eye to eye after a trade dispute. Prime Minister Lee Nak-yon kicked off a three-day visit to Japan in the hope that a meeting with his Japanese counterpart will pave the way for improvements in the two countries’ strained relations. Before heading to Tokyo, Lee said he hoped South Korea and Japan would foster harmonious and mature relations despite difficulties, speaking with Japanese Ambassador Yasumasa Nagamine, who saw Lee off at Seoul Airport in Seongnam, Gyeonggi Province. “I don’t expect that this visit will resolve everything but it will become an opportunity to take a step forward,” Lee said. Lee described Japanese Emperor Naruhito as a “warm and friendly” person, recalling their encounter at the World Water Forum in Brazil in March last year. On Tuesday, Lee attended Naruhito’s enthronement ceremony at the Imperial Palace, which was followed


By The Korea Herald
October 23, 2019

Economics

Mahathir warns of possible trade sanctions on Malaysia amid US-China trade war

From a Reuters report in Straits Times. Malaysian Prime Minister Mahathir Mohamad said on Monday (Oct 21) that his exports-reliant country could be hit with trade sanctions amid rising protectionism highlighted by the United States-China tariff war. Tun Dr Mahathir did not mention the source of possible sanctions on the South-east Asian country, but said he was disappointed that proponents of free trade were now indulging in restrictive trade practices on a “grand scale”. “Unfortunately, we are caught in the middle,” he told a conference in the capital Kuala Lumpur, referring to the US-China trade war. “Economically, we are linked to both markets and physically, we are also caught in between for geographical reasons. There are even suggestions that we ourselves would be a target for sanctions.” The US and China were two of the three biggest export dest


By The Straits Times
October 23, 2019

Economics

Nepal needs development, but not by coercion

Reimagining Nepal and developing it warrants a broad outlook that listens to its people and shows regard for their displeasure. The country’s obsession with bulldozers and excavators as a symbol of development reached an eerie new high yesterday as a viral video sent a chill down people’s spines. In the name of building a road in Dashrath Chand Municipality in Baitadi (roads are synonymous with development in Nepal), an excavator was seen gouging into the land even as locals protested and pelted it with stones. Read: Excavator operator and three others detained for investigation in Baitadi As the excavator operator pressed forward using brute force in a disoriented manner, the massive machine’s toothed bucket knocked down a woman to the


By The Kathmandu Post
October 23, 2019

Economics

S. Korea grapples with gender discrimination in workplace

Despite it’s high economic developments, critics say that South Korea has to improve workplace equality. South Korea has seen its female employment index improve steadily over the past 10 years, but continues to struggle with gender equality when it comes to parental leave and consequent career breaks, data showed Monday. Unlike in most developed economies which tend to see the employment rate of women in their 40s peak and start declining in the 50s, Korea has seen women in their late 30s and early 40s — the prime age for childbirth and childcare — being pushed out of the labor market. All seven of the so-called 30-50 club count


By The Korea Herald
October 22, 2019

Economics

President Joko Widodo sworn in for second term

Joko exhorts Indonesians to develop ‘new ways and values’. A few hours before he was sworn in for a second and final term in office on Sunday (Oct 20), Indonesian President Joko Widodo uploaded a new profile picture on Facebook with the caption “Let’s work together towards progress for Indonesia”. The post has since garnered more than 224,000 likes and over 19,000 comments from well-wishers congratulating him on his re-election and cheering him on to steer the country to success. At around 4pm Jakarta time (5pm Singapore time), millions of Indonesians tuned in to a live television broadcast as Mr Joko, more popularly known as Jokowi, recited his oath of office before lawmakers and regional senators that make up the People’s Consultative Assembly, or MPR, at the Parliament building. The new Vice-President, cleric Ma’ruf Amin, who replaced outgoing Mr Jusuf Kalla, also took h


By The Straits Times
October 21, 2019

Economics

More changes friendly to foreign investors on way in China

China is courting more FDI as their cash reserves run lower. China will roll out more measures friendly to foreign investors, including further removing business restrictions and leveling the playing field for foreign businesses, to foster a more enabling business environment and attract overseas investment. The decision was made on Wednesday at a State Council executive meeting chaired by Premier Li Keqiang. Meeting participants decided to open up more areas. Restrictive measures outside the national and FTZ negative lists on foreign investors’ market access will be consolidated. Restrictions will be lifted on the business scope for those foreign-invested banks, securities companies and fund management firms that are already operating in China. Policies on foreign investment in the automobile industry will be refined, including giving equal treatment in market access to domestic and foreig


By China Daily
October 18, 2019