Trump's Tariff Deal Provides Little Relief for Japanese Automakers Amid Looming Threat

Japanese car manufacturers felt relieved following U.S. President Donald Trump's completion of a trade deal last week.
Nevertheless, the optimism is balanced by rising rivalry, particularly from China, according to industry specialists.

Japanese car manufacturers might have avoided heavy U.S. taxes, yet this temporary relief provides minimal reassurance amid increasing competition from Chinese auto companies that are diminishing their traditional worldwide advantage, further compounded by ongoing internal structural issues.

On July 22, American president Donald Trump stated that auto tariffs The import tax for vehicles made in Japan into the U.S. was reduced from 25% to 15%.

Nevertheless, the light is not yet visible at the end of the tunnel, according to industry specialists.

"A trade agreement reached with the U.S. is definitely reassuring because it provides some clarity that American tariffs on Japanese vehicles will not reach excessive amounts," stated Stefan Angrick, who leads Japan and Emerging Market Economics at Moody's Analytics.

However, I would be reluctant to refer to it as positive news. A 15% U.S. import tax remains considerably higher than where Japan began. Additionally, a 15% duty is definitely a greater rate than what most people anticipated.

The greater difficulty, according to experts, stems from China's rapid ascent in the worldwide automobile sector. Previously a key expansion area for Japanese manufacturers, China has evolved into a leading rival.

One major issue facing Japanese manufacturers, according to Angrick, is the growing rivalry coming from China. He noted that China's advancement in high-tech production has made it a strong opponent at a time when local interest in Japanese vehicles is starting to decline.

Supporting this perspective is Karl Brauer, an executive analyst at iSeeCars, who stated that budget-friendly Chinese cars continue to be the "main greatest challenge" for Japan's automotive sector and financial prospects.

China is the leading global manufacturer and supplier of automobiles, especially of electric vehicles The nation's increasing control over key elements and electric vehicle advancements is increasingly squeezing foreign automakers .

Chinese car manufacturers have also been gaining considerable traction in Southeast Asia — a territory previously controlled by Japanese companies such as Toyota, Honda, and Nissan - making it difficult for Japanese car manufacturers to keep their previously unchallenged position in the worldwide market.

According to a 2025 report by PwC The portion of the automotive market held by Japanese car companies in Indonesia, Malaysia, Thailand, the Philippines, Vietnam, and Singapore—often known as the ASEAN-6—decreased from 68.2% in 2023 to 63.9% in 2024.

"Chinese automobiles are entering markets where Japanese companies previously held significant influence. Thailand serves as an example," noted the expert from Moody's Analytics.

Beyond Southeast Asia, The second largest automotive exporting destination for Japan is also facing opposition from China: Australia.

A a new study funded by the Australian Automotive Dealer Association forecasts that China will overtake all other nations to become Australia's top supplier of car imports in the coming ten years.

By 2035, it is projected that 43% of all vehicles brought into Australia will originate from China, compared to an anticipated 17% in 2025, according to the study. In comparison, Japan's share of vehicle imports is forecasted to decrease from 32% in 2025 to 22% by 2035.

Domestic challenges?

In addition to outside rivalry, Japan's automobile industry faces internal financial issues such as rising prices and low customer expenditure—conditions seen in other advanced nations.

Although major car manufacturers such as Toyota remain successful within their home country, Brauer noted that Nissan faces particular risks because of the increasing challenge posed by China's automobile sector.

Previous errors made by the leadership and planned plant closures is worsening its challenges. Nissan intends to close seven of its 17 facilities by fiscal year 2027 and cut back on its operations. approximately 15% increase in the global workforce as part of an organizational realignment initiative.

"In summary, the future of Japan's automotive sector appears highly difficult," stated Moody's Angrick.

Although Toyota benefits from its worldwide size and varied production network, allowing it to better handle these issues, smaller car manufacturers like Subaru and Mazda face greater difficulties, according to Mio Kato, head of Lightstream Research.

Although Subaru and Mazda encounter a "much greater responsibility," they benefit from having close relationships with Toyota, according to Kato.

Mazada, for one, collaborates on a shared plant with Toyota , meanwhile, Subaru is collaborating with Toyota to produce an electric vehicle developed jointly, scheduled to launch in 2026.

Over time, Kato thinks these collaborations might become stronger, possibly resulting in a more official integration within Toyota's structure.

"I don't anticipate [a consolidation] occurring in the near term. That being said, it's definitely an option they should think about as we approach the end of the decade, maybe even sooner," he mentioned.

Nevertheless, experts recognize that Trump's established tariff rates offer at least one advantage: a degree of certainty.

Although it's premature to completely assess the long-term effects of the latest trade deal between the U.S. and Japan, establishing a verified tariff arrangement will help Japanese car manufacturers understand their future prices and expenses, according to specialists.

Nevertheless, it is still uncertain which tax levels other car manufacturers will encounter.

"I believe the strong argument regarding Japan is now fairly clear, but when considering how their competitive position changes compared to vehicles produced in South Korea and shipped out, or those made in Mexico and Canada, this could still affect the earnings projections for Japanese automakers," Kato stated.