Finley: Today's tariff talks critical to automakers
There's a chance — a terribly slim one — that a self-inflicted economic disaster can be averted today as Japanese negotiators meet with the Trump administration to discuss trade and tariffs.
It is the first session in bilateral talks aimed at producing the "free, fair and reciprocal trade" that President Donald Trump and Prime Minister Shinzo Abe agreed to at their Washington sit-down in April.
For Detroit, the outcome is critical, since the discussion will focus heavily on heading off the 25 percent tariffs the president is threatening on imported automobiles and auto parts.
"Japanese automakers operating in Michigan try to procure as much as their resources as possible from the United States, but some has to be procured from the rest of the world," said Hiroshige Seko, Japan's minister of economy, trade and industry.
"Additional tariffs have been imposed on steel and aluminum and have already had an impact on the auto industry. Some of the car manufacturers have already raised their prices."
"If additional tariffs are imposed on the finished vehicle and auto parts, the impact will be much bigger and more serious."
And not just for Japan. In Michigan, there are 499 Japanese-owned facilities, mostly auto related, with 40,526 direct jobs — 95 percent of them held by Americans. Employment in Japanese companies located in the state is up 23 percent since the Great Recession.
In the U.S., total auto related employment connected to Japanese companies is 1.5 million.
Seko was in the area visiting some of those facilities, as well as American auto suppliers, when I sat down with him last week in Plymouth.
"I have met with many people in this industry involved in the auto industry, and everyone of them said the impact of the tariffs will be big," he said.
Trump considered implementing the tariffs on imported vehicles and parts earlier this summer, but backed off under protests from Asian and European manufacturers, as well as warnings from the domestic industry. The Department of Commerce is conducting an impact review of such tariffs, due out in September.
Japan submitted a report to Commerce estimating that imposition of the tariffs will cost 647,000 U.S. jobs.
And Japan will be hit hard as well. Since Trump's election, trade between the U.S. and Japan has boomed and direct foreign investment by Japan in this country has climbed 70 percent to $13 billion.
That investment goes a long way toward mitigating the $69 billion trade deficit with Japan.
Hitting Japanese automakers with tariffs is counterproductive in another sense. While Japan does export 1.74 million cars to the U.S. annually, it also builds 3.77 million vehicles here, making them in effect domestic automakers.
Those U.S. assembled cars do contain foreign parts, so the tariffs will make them much more expensive.
"We can expect a big price hike for the automobile, which will of course push down sales," Seko said. "And it will have a big impact on employment in the automobile industry."
Will Japan retaliate?
"Nothing has been decided," Seko said. "We have not imposed countermeasures to the tariffs on steel and aluminum. That is due to the good relationship enjoyed by Prime Minister Abe and President Trump.
"However, if the tariff is to be imposed on the automobile itself, our response cannot remain the same."
Seko warns the trade war could trigger a global economic downturn.
"If there is a tit-for-tat exchange of countermeasures it will dampen the world economy very much," he said.
While Japan is eager to avoid the tariffs, Seko said he is not optimistic about today's negotiations.
"At this stage, it is very difficult for me to see a way out," he said. "But we will make our honest efforts to the very end to make sure tariffs on auto imports never happen."
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