Six Charts That Show Why Japan Is Trembling Over Trump's Auto Tariff Threat

(Bloomberg) -- Donald Trump’s talk of slapping tariffs on auto imports is one threat Tokyo can’t afford to ignore. Potential levies on Japan’s biggest manufacturing industry could tip the scales for an economy that is already in a vulnerable spot.

U.S. and Japanese negotiators will meet again on the sidelines of the Group of 20 summit in Osaka, starting Friday, with Tokyo hoping it can keep the tariff threat safely parked out of harm’s way.

Additional tariffs or import restrictions could slice 0.5% off Japan’s gross domestic product if they halved the amount of Japanese cars exported to the U.S., according to Takahide Kiuchi, an economist at Nomura Research Institute Ltd. and former Bank of Japan policy board member.

That’s the last thing Japan’s economy needs as a global slowdown exacerbated by Trump’s trade war pummels its exports and a tax hike that could squeeze consumption looms on the horizon later this year.

Here are six charts showing what’s at stake for Japan’s economy if Trump imposes a 25% tariff on imported vehicles.

Cash Cow

The U.S. is Japan’s largest export market after China and its biggest car customer. Even after Japanese automakers moved a sizeable portion of production to America, vehicles and auto parts still comprise 35% of Japan’s exports to the U.S., according to Finance Ministry data for 2018.

Manufacturing Muscle

The auto sector is more of a driving force in Japanese manufacturing these days than it was in the 1980s when Japan’s electronics industry was the leading light. At the time of the Plaza Accord, a multilateral currency deal partly aimed at addressing previous trade frictions between Tokyo and Washington in 1985, Japan produced about 50% more electrical items than cars in value terms. Those relative levels are now largely reversed.

Major Employer

The auto sector is one of Japan’s biggest employers. Some 862,000 people make the cars and vehicle parts at plants across the nation, according to the latest data from the Japan Automobile Manufacturers Association. That figure balloons to 5.4 million, or 8.3% of Japan’s workers if the scope is widened from the production lines of vehicles to include retailers and repairers, and other auto-related employees. All these people spend money in the economy, further multiplying the impact of the car industry in Japan.

Among the auto firms, Toyota Motor Corp. also plays a kind of benchmark role for manufacturing sector wage gains. Boosting pay has been a major priority for Prime Minister Shinzo Abe’s government as it struggles to fuel a cycle of higher wages, consumption and prices. That’s a goal that could be compromised further if the auto sector is hit with tariffs.

Stock Influence

Wiping out the profits of the auto sector would batter the stock market. The latest available figures for 164 listed Japanese companies that make cars or auto parts show total auto-related revenue of about 102 trillion yen ($950 billion), equivalent to 19% of total gross domestic product, according to a Bloomberg calculation. Standing head and shoulders above them all is Toyota as Japan’s biggest company, with a market capitalization more than twice the size of Softbank Group.

Future Investment

The auto sector is Japan’s biggest investor in the future. Car makers need to spend heavily to keep up with the sea changes facing the industry as it lurches toward electric self-driving vehicles. While the companies are still cash-rich, they will need to maintain capital spending levels to keep up with foreign rivals that are embracing change quickly. High capex levels have helped support Japan’s economy in recent quarters.

U.S. Footprint

The Trump administration considers the growing presence of foreign automakers in the U.S. market as a potential threat to national security. Trump also rails at the lack of traction for U.S. cars in Japan. But executives at Japan’s car makers also feel indignant that their investment in 24 manufacturing plants, 45 research and design facilities and 39 distribution centers in the U.S. appears to get brushed over by Trump.

JAMA says nearly 3.7 million vehicles were built by 94,000 Americans working for Japanese car companies in the U.S. last year. Add in suppliers and dealerships and Japan’s car industry is providing jobs for 1.6 million people in the U.S., it adds. The implication of a report put together by the industry body in May is that action that weakens Japanese auto producers may not be the best way to protect U.S. jobs.

To contact the reporters on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net;Emi Urabe in Tokyo at eurabe@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Henry Hoenig

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