Japanese Automakers in Mexico and Canada Face Tariff Threat from Trump
Japanese automakers and their suppliers with production bases in Mexico and Canada are facing the prospect of hefty tariffs after Donald Trump takes office in January. In a social media post on November 25, the U.S. president-elect vowed to raise tariffs on imports from the two countries to 25 percent.
This poses a significant challenge for companies like Toyota, Honda, Nissan, and Mazda, all of which operate production plants in Mexico, where labor costs are relatively low. These companies export a substantial percentage of their vehicles built in Mexico and Canada to the United States, taking advantage of the United States-Mexico-Canada Agreement (UMCA).
The UMCA, which took effect in 2020, exempts imports and exports among the three countries from tariffs under certain conditions. However, Trump's proposed tariffs could significantly disrupt this trade flow.
Honda, for example, produces about 30 percent of the vehicles it sells in the United States in either Mexico or Canada. Executive Vice President Shinji Aoyama has expressed concern about the potential impact of tariffs, stating that the company will resort to lobbying and other efforts to address the situation.
Nissan, which recently announced plans to shed 9,000 workers and reduce global production capacity due to weak performance, could face an additional blow from high tariffs on imports from Mexico. About 26 percent of the approximately 915,000 vehicles Nissan sold in the United States in fiscal 2023 were manufactured at its four plants in Mexico.
Parts and materials suppliers are also feeling the heat. Mitsui Chemicals, which produces plastics for auto parts in the United States and Mexico, has stated that it will be forced to review the allocation of work between the two countries if tariffs rise substantially.
Major auto-parts maker Denso Corp., which supplies components produced at four factories in Mexico to automakers' plants in both countries, is closely monitoring the situation.
While Trump has not yet taken office or decided on specific policies, the prospect of tariffs is causing concern among Japanese automakers and their suppliers in Mexico and Canada. These companies are now facing the challenge of adapting their strategies to the potential changes in trade policy.