BREAKING NEWS

Now Reading:

Japan backs Toyota over Trump Mexico tax threat


Business

Japan backs Toyota over Trump Mexico tax threat

The Japanese government has spoken out in defence of Toyota, responding to President-elect Donald Trump threatening to slap punitive tariffs on the cars it is planning to build at a new plant in Mexico.

Trump has frequently attacked US manufacturers for using lower-cost factories abroad, threatening them with heavy import taxes but this is the first time he has gone after a foreign company.

Trump’s tweet caused shares of Toyota, the world’s largest carmaker, to fall in value in Friday along with those of Nissan and Honda.

Japan’s Minister of Economy, Trade and Industry Hiroshige Seko pointed out: “Japan’s auto industry has enormously contributed to the US economy by employing 1.5 million people. Moreover, we don’t have any plan to move existing plants in the US to Mexico or other countries.”

Indeed, the Mexican plant concerned – which is in Guanajuato not Baja and is due to come online in 2019 – will mean production of some Corollas shifting from Canada, not the US.

Toyota currently exports less than 10 percent of the vehicles it makes in Mexico to the United States.

It is actually Nissan, Japan’s second-largest carmaker, that stands to suffer much more if Trump follows through on his border tax threats as Mexican-made vehicles comprise around one-quarter of Nissan’s total US sales.

What’s made where

Japanese automakers together produced around 1.4 million vehicles in Mexico in the year to March 2016, nearly 40 percent of the country’s total output. According to the Japan External Trade Organisation, they plan to increase production to 1.9 million by 2019.

Current production in Mexico is dwarfed by the number of cars they produce in the United States, their single largest market, where Japan’s top three carmakers alone produced around four million vehicles in 2015.

Taxing times

Trump has said he plans to renegotiate the North American Free Trade Agreement between the United States, Canada and Mexico, and has vowed to impose a 35 percent tariff on cars exported to the United States from Mexico.

According to JP Morgan estimates, an increase in tariffs on cars exported from Mexico to the United States to even 10 percent would hit Nissan’s consolidated operating earnings by 10.3 percent, more than 5.5 percent at Mazda. Toyota would see a hit of 0.7 percent, while Honda 2.2 percent.