Trump's Japan deal raises concerns from Detroit Three. Here's why

WASHINGTON — President Donald Trump's trade deal with Japan is causing domestic automakers to raise concerns about facing a competitive disadvantage against their foreign-owned rivals.

Trump said late Tuesday that Japan would be subject to a 15% tariff, significantly lower than the 27.5% rate currently in place for many other foreign cars, trucks and auto parts. The Trump administration confirmed Wednesday morning that the lower rate would apply to Japanese automotive goods, including finished vehicles.

The White House also underscored that the trade deal — for which full details are not yet available — included Japan agreeing to accept U.S. auto standards. That means American-made vehicles with left-hand drives could be exported directly off the lot to Japan, where right-hand drive vehicles are standard.

The Detroit Three automakers had warned for months that tariff rates favoring major automotive trade partners like Japan, South Korea and Germany could undermine other efforts by the Trump administration to reshore U.S. manufacturing. Those fears have now materialized, though some in the industry have celebrated other components of the deal and cautioned against overreactions.

“American Automakers still need to review the details of the U.S.-Japan agreement," said Matt Blunt, president of the American Automotive Policy Council, a trade group representing the interests of Ford Motor Co., General Motors Co. and Stellantis NV. Blunt is also the former Republican governor of Missouri.

But "any deal that charges a lower tariff for Japanese imports with virtually no U.S. content than the tariff imposed on North American-built vehicles with high U.S. content is a bad deal for U.S. industry and U.S. auto workers,” he added in a statement.

Currently, all North American vehicles and auto parts that comply with the U.S.-Mexico-Canada free trade agreement are not subject to any tariffs. The agreement covers the vast majority of automotive trade between the three countries, meaning that U.S. automakers still maintain a tariff advantage — for now — thanks to their heavily integrated North American supply chains.

Items from Canada and Mexico that do not comply with USMCA face a 25% tariff, and Trump has threatened to raise rates even higher to 30% or 35% on Aug. 1. It is unclear whether the tariff hike would also come with an end to Trump's USMCA exemption.

Autos Drive America, a trade group representing foreign automakers in the United States, cheered the agreement with Japan and expressed hope for similar ones with other U.S. trade partners.

"International automakers have invested more than $124 billion in their U.S. operations over the past thirty years, and the certainty provided by this agreement allows them to plan for greater investment, bringing even more production to our shores and providing affordable options for American consumers," President and CEO Jennifer Safavian said in a statement.

She added: “International automakers represent the growth of the U.S. auto industry, having out-produced the Detroit 3 in U.S. production for the past two years. Now, we urge the Trump administration to swiftly reach similar agreements with other allies and partners, especially the European Union, South Korea, Canada and Mexico."

Lansing-based economist Patrick Anderson estimated Wednesday that some Japanese vehicle imports, thanks to the new trade deal, could hold a cost advantage over similar foreign models of $5,000 or more.

Industry insights

Glenn Stevens, executive director of MichAuto, the automotive arm of the Detroit Regional Chamber, said the industry should not "overreact" to the Japan deal. "We just have to remember this is a long process. All these trade negotiations, they take time to play out," he said in a phone interview.

"Until other negotiations are completed and things shake out, yeah, it would appear that it does put other OEMs bringing vehicles into the United States — including the Detroit Three — at a disadvantage," Stevens added. "But if that's the case, I just don't see this president letting that affect American workers long-term. It just goes against what he stands for."

Stevens also highlighted the potential boon to U.S. automakers from being able to export vehicles more easily to Japan. The country exported about 1.4 million passenger vehicles to the United States last year while importing less than 17,000, according to data from the U.S. Department of Commerce.

That imbalance has long been a source of tension, even before Trump returned to the White House. But Trump has brought renewed focus to the topic while promising to revamp U.S. trade relationships around the world.

"Remember, Japan is, for the first time ever, OPENING ITS MAKET TO THE USA, even to cars, SUV’s, Trucks, — and everything else, even agriculture and RICE, which was always a complete NO, NO," the president wrote in a social media post Wednesday. "The Open Market Japan may be as big a profit factor as the Tariffs themselves, but was only gotten because of the Tariff Power."

It is unclear, however, whether U.S. automakers will be able to successfully penetrate a Japanese market that prizes smaller vehicles over the larger trucks and SUVs that are popular stateside. Many of the top-selling models in the country are "kei cars," which are compact, low-cost, fuel-efficient models.

As for Japanese automakers operating in the United States, the tariff reduction will be welcome but not transformative for companies like Toyota Motor Corp. and Honda Motor Co., both of which have developed major U.S. manufacturing operations over the past several decades.

"Most of what Honda and Acura sell here is produced in North America," said Sam Abuelsamid, an auto industry veteran and vice president at communications firm Telemetry. "The imports that they have are from Mexico and Canada, rather than Japan."

He noted that Honda on Tuesday celebrated the 40th anniversary of the first engine built at its manufacturing plant in Anna, Ohio. The company, according to a press release, has built more than 32.5 million engines there since.

Speaking about Toyota, Abuelsamid added: "They have more Japanese imports, primarily the Land Cruiser-based vehicles like the Land Cruiser, the Lexus GX and LX, the Toyota 4Runner and then some lower-volume models from Japan. But most of their highest-volume stuff is produced here."

The analyst pointed out that the duo of Japanese auto giants performed well in Cars.com's 2025 American-Made Index. Honda won especially high marks, occupying nine of the top 20 spots. Only two models from the Detroit Three — the Jeep Gladiator at No. 5 and Wrangler at No. 13 — ranked that highly.

The companies that might gain a stronger advantage from the tariff reduction, according to Abuelsamid, are smaller automakers like Mazda Motor Corp. and Subaru Corp. that import a higher share of their vehicles directly from Japan.

"But I wouldn't say they necessarily get much of any benefit," he said. "They're still having to pay tariffs."

Wall Street's reaction

Auto stocks traded higher Wednesday afternoon following the news of the Japan trade deal, with investors appearing bullish on the prospects of similar agreements with Europe and Korea.

Toyota and Honda were the biggest gainers among automakers traded on the New York Stock Exchange. Share prices for both closed up more than 13%. Nissan Motor Co. followed behind with an 8% leap. Mazda and Subaru, both listed on an ancillary exchange, saw larger increases of more than 17%.

Stellantis, headquartered in the Netherlands, saw share prices close up more than 11%. GM, which imports popular crossover models from South Korea, finished up more than 8% on the day.

Ford's stock gained modestly compared to the rest of the auto sector. The Dearborn-based automaker assembled more than 80% of its vehicles in the United States last year, a fact it has touted amid shifting trade policies from the Trump administration.

David Whiston, analyst at investment firm Morningstar Inc., said the reduction in Japan's tariff rate is most likely to benefit Toyota.

“That doesn’t seem fair or certainly not a good deal for American automakers” who import their vehicles from Mexico, Canada, South Korea and other countries that aren’t Japan, Whiston said.

There is, however, a chance the deal could benefit the Detroit Three over time. Best positioned is GM, whose Cadillac brand in March said it was introducing right-hand-drive electric vehicles, including the debut of the Lyriq SUV, and promised it would offer a full lineup of EVs in Japan. Ford, meanwhile, left the Japanese market in 2016 because of low sales and unprofitability.

“Will there be 50,000 Cadillacs sold in Japan next year? Probably not,” Whiston said. “We’ll see how open the Japanese market really is. It may become more open to American imports, which could be fortuitous timing for Cadillac.”

Japanese buyers tend to prefer domestic brands, he added, though luxury German brands have been an exception.

“If they truly were to open the market up, and domestic brands could gain a meaningful share, and GM or Ford says they need to build an assembly plant in Japan, that would be a real sign that times have changed,” Whiston said. "But that’s way too far in the future to talk about.”

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