US Focus on Auto Trade Gap Is Sticking Point for Japan Deal

Vehicles bound for shipment at a port in Yokohama, Japan. Photographer: Akio Kon/Bloomberg Photo by Akio Kon /Bloomberg

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(Bloomberg) — A strong US focus on its auto trade deficit with Japan is a key factor keeping the two nations from reaching a deal, according to a Japanese opposition party leader who met with Prime Minister Shigeru Ishiba to discuss the tariff negotiations.

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Yoshihiko Noda, who heads the Constitutional Democratic Party of Japan, said on Thursday that he asked Ishiba what was preventing the two sides from finding common ground in the talks that have continued for around two months.

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“He didn’t give a clear explanation, but it seems that the US has the strongest interest in the auto trade deficit,” Noda told reporters. “Various ideas were probably proposed, but there are differences in thinking regarding autos. So, he said a general consensus has yet to be reached.”

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Ishiba briefed Noda and other party leaders about the latest developments in the bilateral trade negotiations. The prime minister and US President Donald Trump met on the sidelines of the Group of Seven summit in Canada earlier this week, but failed to come to an agreement.

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Japan’s trade surplus with the US last year stood at ¥8.6 trillion ($59.3 billion), the fifth largest on record. Roughly 82% of the gap was due to Japan’s surplus in cars and auto parts. The differential put the nation in Trump’s crosshairs as he kicked off a global campaign to rebalance US trade deficits using tariffs.

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Trump has imposed levies of 25% on cars and related parts. The auto duties are a particular concern for Japan as the car sector is crucial to its economy, employing some 5.6 million people, about 8.3% of the country’s work force, and generating around 10% of gross domestic product, according to the Japan Automobile Manufacturers Association.

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The tariffs are raising the risk that Japan’s economy enters a technical recession after contracting in the first quarter of the year, ahead of the bulk of the measures. Exports to the US fell 11% in May, with shipments of autos slumping about 25%. Japan’s trade surplus with the US in the month stood at ¥451.7 billion, with 93% of that due to autos and related parts, according to the Finance Ministry.

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Thursday’s gathering among party leaders comes ahead of an upper house election in July. The tariff negotiations loom large not only for the economy, but also Ishiba’s public standing.

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Japan Innovation Party co-leader Seiji Maehara also cited the prime minister as saying that autos are the biggest point of disagreement between the two nations.

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“He didn’t mention the details,” Maehara said after the meeting. “But I felt that the biggest difference exists in automobiles. Japan is requesting a reduction in automobile tariffs, but I suspect that Trump may not have agreed to that.”

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Ishiba emphasized in the conference that he will make sure companies in the auto sector are getting ample support for loans, while seeking cooperation beyond party lines to secure Japan’s interest in the trade talks, Maehara said.