Donald Trump just signed the bilateral deal with Japan. This agreement will reduce the tariff rate for imports of vehicles made in Japan to the United States from 25% to 15%. This announcement comes as both countries continue negotiations to strengthen ties between the two countries, especially in the auto industry. Yet the timetable for when this reduced tariff will be implemented is still up in the air.
Japanese Prime Minister Shigeru Ishiba appears poised to engage in strong substance with Trump. Their focus isn’t on compliance, but rather on expediting the rollout of the new tariff rate. These kinds of negotiations are desperately timeliness. As you might imagine, U.S. tariffs have taken a huge toll on Japanese automakers, and especially Honda. The Japanese giant recently announced a shocking 50% drop in its operating profit in the first quarter of its fiscal year. This decrease marked a shortfall of 244.17 billion yen, coming in well under analyst projections.
In 2024, auto exports to the U.S. will account for 28.3% of all Japanese shipments. This points to how important the American market is for Japanese automakers. The recently imposed 25% tariffs on imported vehicles, which took effect on April 3, have contributed to Honda’s challenging financial performance. Japanese auto manufacturers have been forced to react to these tariffs by lowering costs. As a consequence, they are reducing the price of their vehicle exports to the U.S. market.
Honda also had a major increase in revenue, hitting 5.34 trillion yen for the first quarter. This commendable topline growth was eclipsed by a steep drop in operating profit. Analysts had expected an operating profit of 323.48 billion yen, underscoring that Honda’s dismal results were a huge miss. The effect of a much stronger yen, in addition to the tariffs, has multiplied these financial burdens.
In June, Tokyo saw the value of its car exports to the U.S. fall by 25.3% from a year earlier. That was somewhat offset by car export volumes increasing by 4.6%. This juxtaposition represents a complicated and at-times paradoxical market dynamic that Japanese manufacturers continue to be challenged by. Japan’s chief trade negotiator, Ryosei Akazawa, is en route to Washington. For one, he wants to convince Trump to issue an executive order that spells out exactly when they’ll implement the new tariff rate.