Tariff Talk: U.S. and Japan Reach Trade Agreement

BIG NEWS!  The U.S. and Japan have reached a trade agreement that will reduce tariffs on Japanese vehicles and auto parts to 15 percent—down from the 25 percent rate that was set to take effect August 1—offering relief to Japanese automakers but drawing sharp criticism from U.S. industry and labor leaders. The deal includes a 12.5 percent new tariff plus the existing 2.5 percent duty on passenger cars. Analysts estimate the change will lower Japanese automakers’ U.S. tariff costs by up to 40 percent, avoiding more than $11 billion in annual expenses. In return, Japan has pledged to invest $550 billion in the U.S., with funding earmarked for energy, semiconductor production, and critical minerals. The White House said spending decisions will be made at President Trump’s discretion. Japanese automakers welcomed the move, and shares of Toyota and Honda surged. U.S. Commerce Secretary Howard Lutnick said the deal also ensures Japan will accept American vehicles built to U.S. standards without requiring modifications. However, the United Auto Workers and the American Automotive Policy Council—representing GM, Ford and Stellantis—condemned the deal, arguing it gives Japanese imports an unfair advantage over North American-built vehicles with higher U.S. content. “It’s a bad deal for U.S. industry and workers,” said AAPC President Matt Blunt. The 15 percent rate could also complicate ongoing trade talks with the EU, Canada, South Korea and Mexico. EU tariffs on U.S. goods, including vehicles, are set to rise to 30 percent if no agreement is reached. Analysts warn the new rate risks becoming a “political baseline” that could stall future efforts to reduce tariffs further. As of July 24, the administration had not released a full version of the agreement, only a broad fact sheet.

General Motors

General Motors reported a 35 percent drop in second-quarter net income to $1.9 billion, citing the ongoing impact of import tariffs, which the company says have cost it $1.1 billion since they were implemented in April by then-President Donald Trump. Global revenue for the quarter ended June 30 declined 1.8 percent to $47.1 billion, while adjusted earnings before interest and taxes fell 32 percent to $3.04 billion. In North America, GM’s most profitable region, pretax earnings dropped 46 percent to $2.4 billion on $39.5 billion in revenue. Despite the steep decline, GM said in a July 22 statement that it is maintaining its full-year forecast issued in May, projecting adjusted EBIT of $10 billion to $12.5 billion and net income of $8.2 billion to $10.1 billion—both lower than initial guidance earlier in the year. The company still expects tariffs to reduce profits by $4 billion to $5 billion for the full year. GM shares slipped 2.4 percent in premarket trading. In a letter to shareholders, CEO Mary Barra said the company’s strategic initiatives, along with better alignment of emissions regulations with consumer preferences, will help GM become more resilient and ultimately more profitable as it navigates industry headwinds.

Mazda

In Hiroshima, Japan, concerns are growing as U.S. tariffs take a toll on Mazda and the local economy that depends on it. Mazda, which builds many of its vehicles in Hiroshima and relies heavily on the U.S. market, has already seen U.S. sales slide 18.6 percent in May and 6.5 percent in June. The automaker has withheld a full-year earnings forecast, citing the financial uncertainty created by President Donald Trump’s tariffs. With an estimated 2,000 auto suppliers based in Hiroshima, the impact extends far beyond Mazda’s assembly lines. Smaller suppliers and ancillary businesses—everything from local machine shops to neighborhood bars—are feeling the ripple effect. Mazda employees have seen overtime and business trips curtailed, and that means fewer after-hours visits to local establishments like Koji Sasaki’s bar near the company’s headquarters. The worry is that Mazda, a smaller player compared to global giants like Toyota or Volkswagen, may struggle to absorb the added costs of tariffs and lose U.S. market share in the process. For a city so closely tied to a single automaker, the long-term effects could reshape Hiroshima’s economic future if trade tensions persist.