American automakers should be very skeptical about the new trade agreement announced by the Trump administration. Specifically, they claim it will not efficiently address the many long-standing access barriers to the Japanese automotive market. Japan is notorious for being one of the most closed automotive markets in the world. Last year, it shipped 1.3 million cars to the United States, taking home roughly 8% of the U.S. car market. Given this tremendous export volume, you would never guess the hurdles that U.S. manufacturers still contend with to access Japan’s small but highly coveted automotive market.
Japan’s automotive market is unlike any other in the world, where just 6% of cars sold are foreign-made vehicles. The country doesn’t charge tariffs on the small number of cars that it imports from the U.S. It’s very difficult for American manufacturers to break into the market due to varying certification processes and lack of dealership access. Japanese consumers overwhelmingly prefer domestically produced vehicles, a fact that makes the fight more difficult for U.S. auto companies.
The import reduction provision would only apply to Japan and would consist of a 15% tariff on Japanese imports, with particular focus on their automobiles and auto parts. This decision has alarmed U.S. manufacturers. Matt Blunt, president of the American Automotive Policy Council, called for a close examination of the agreement’s finer points. He stated, “American automakers still need to review the details of the US-Japan agreement, but any deal that charges a lower tariff for Japanese imports with virtually no US content than the tariff imposed on North American built vehicles with high US content is a bad deal for US industry and US auto workers.”
The real challenge for American automakers isn’t tariffs, but the market’s preference for and investing in the necessary infrastructure. Blunt noted that “Japan has been one of the most closed automotive markets in the world,” suggesting that the barriers are not merely financial but systemic. He added, “We certainly share the president’s objective of opening markets that are closed to US exports, but Japan is going to be a very tough nut to crack.”
Despite President Trump’s assertion that “Japan is, for the first time ever, OPENING ITS MARKET TO THE USA, even to cars, SUV’s, Trucks,” industry experts remain doubtful about the actual potential for expansion in this market. Justin Wolfers highlighted the fundamental differences in consumer needs by stating, “The fundamental problem is if you’ve ever been in Tokyo the cars are small and the roads are narrow.” This Japanese urban design feature does more to eliminate the attractiveness of larger American vehicles.
American auto parts manufacturers also run into huge obstacles in their quest to export to Japan. In 2024, American auto parts manufacturers exported an unprecedented $1.5 billion in parts to Japan. This is in stark contrast to the $35.8 billion we’ve sent to Mexico and the $28.4 billion we’ve shipped to Canada. This disparity speaks volumes and is concerning in light of Japan’s stated commitment to creating a more equitable trading partnership.
Unsurprisingly, American automakers have shifted production away from small cars. With every passing day they do so, their competitiveness in the hyper-competitive Japanese market shrinks. The American Automotive Policy Council argues that Japanese imports receive significant and unfair advantages over other imported vehicles. Taken together, this state of affairs represents shocking inequity in the practice of trade.
