Japanese trade deal with U.S. creates lower tariff rate for vehicles than Canada faces
A new U.S.-Japan trade deal reportedly gives the Asian country a 15 per cent flat tariff rate — providing a potential edge in key export areas such as auto manufacturing, where Canadian finished vehicles currently face a 25 per cent tariff rate.
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United States President Donald Trump announced the deal with Japan on Tuesday but details remain vague, as no official text of the deal was released.
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That is similar to other trade deals that the U.S. has announced in recent weeks, where the details remain undisclosed. Still, as Canada inches toward an August deadline on negotiations with the U.S., auto industry professionals offered mixed reactions as to how Japan's deal could affect the competitiveness of Canada's sector.
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'If you're Japan, and you're looking around and saying where are my competitors, you're feeling pretty good,' said Eric Miller, president of Washington, D.C.-based Rideau Potomac Strategy Group, a consulting firm on trade policy. 'Autos are about a quarter of their exports, and the auto access was a significant piece of this.'
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Indeed, according to the World Bank, auto and related exports accounted for about 20 per cent of Japan's trade in 2022.
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Within Canada's auto sector, the agreement spurred mixed reactions.
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On the one hand, if Japanese-built vehicle exports to the U.S. face a lower duty than Canadian built ones, this could in theory incentivize some automakers to move production to Japan.
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On the other hand, that is considered unlikely by many within the auto industry who hold out hope that in the end, Canadian-built autos are likely to receive a lower tariff rate than Japan.
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'That's certainly the hope,' said David Adams, president of the Global Automakers of Canada, a lobbying group that represents Honda Motor Co. Ltd. and Toyota Motor Corp. among other foreign automakers.
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He and others say that vehicles built in Canada, often in border towns such as Windsor, have far more spillover effects in terms of creating jobs in the U.S. than vehicles built in other countries that are separated from the U.S. by an ocean.
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In reality, Canadian automakers are already paying below 15 per cent in many cases. That is because the Trump Administration adjusted its policies such that automakers can declare the value of any Canada-United States-Mexico Agreement (CUSMA) compliant parts contained within a vehicle and deduct that amount from the total value of the vehicle subject to a tariff.
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