Photo/Illutration Vehicles for overseas markets are loaded onto a carrier at a Nissan Motor Co. plant in Yokosuka, Kanagawa Prefecture, in May. (Asahi Shimbun file photo)

The automotive industry is expected to face a prolonged impact of steep U.S. tariffs on vehicles as Tokyo and Washington failed to reach a middle ground on trade issues on the sidelines of the Group of Seven summit.

Prime Minister Shigeru Ishiba and U.S. President Donald Trump agreed to continue negotiations at a meeting in Kananaskis, Canada, on June 16, but Ishiba told reporters that it is difficult to say when an agreement is expected.

After Trump announced plans to impose additional 25-percent tariffs on vehicles, automakers expanded production and exports before the duties took effect to avoid the increasing prices in the U.S. market.

“We have an inventory for 100 days (in North America),” Tatsuo Nakamura, executive vice president of Mitsubishi Motors Corp., said at a news conference in May. “We want to keep prices unchanged.”

Still, automakers will have to either raise prices or shoulder tariffs and squeeze profits when tariff-free inventories run out.

Toyota Motor Corp. has said it will not pass the tariffs straight onto consumers, but officials said the company has been considering what to do based on individual vehicle models as they come up for annual price revisions.

Bank of Japan statistics suggest that automakers have lowered prices of export models for the near term to absorb the U.S. tariffs and maintain prices.

According to the corporate goods price index for May, which was released on June 11, export prices on the contract currency basis for North America-bound cars plunged 18.9 percent from a year earlier to 87.3, as compared to the 2020 average of 100.

Toyota has said its operating profits will tumble by 180 billion yen ($1.25 billion) in April and May alone if the tariffs remain in place. This would translate into about 1 trillion yen evaporating on an annual basis.

Honda Motor Co.’s operating profits are expected to fall by 650 billion yen in fiscal 2025, including impacts on motorcycles and other products, while Nissan Motor Co.’s operating profits are likely to drop by up to 450 billion yen.

Industry officials expect an early conclusion of negotiations with the United States, but many emphasize that Japan must prioritize removing the additional tariffs on vehicles over jumping to a rough-and-ready decision.

Trump has not indicated any plans to eliminate the tariffs. The U.S. president even told reporters on June 12 that he may raise them in the near future.

If the tariffs continue, automakers may choose to crank up production in the United States over the mid- to long-term.

Industry officials are concerned that supply chains may also migrate to the United States, leading to a hollowing out of the automotive industry.

Takashi Kayamoto, chairman of the Japan Auto Parts Industries Association and chairman of spring manufacturer NHK Spring Co., said in May that he is terrified of the prospect of a decline in Japan’s production technologies and manufacturing capabilities.

(This article was written by Akihiro Nishiyama and Kaname Ohira.)

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