US Trump Tariffs and IRA Abolition... Japanese Auto Industry on Alert

Mexican and Canadian Finished Vehicle and Parts Manufacturers Hit Hard
Moves to Restructure U.S. EV Production Bases
Impact Unavoidable for Toyota, Honda, and Nissan

The high tariffs imposed by U.S. President Donald Trump and the removal of preferential measures for electric vehicles have put the Japanese automobile industry on alert. The photo shows people passing by cars displayed in front of Toyota's Tokyo headquarters. (Photo by AP and Yonhap News)

Japanese automakers are facing a crisis due to U.S. President Donald Trump's high tariffs and the repeal of electric vehicle (EV) incentives. Both finished vehicle and parts manufacturers located in Mexico and Canada, as well as EV production bases within the United States, are expected to be affected. Consequently, there are signs of swift moves to reorganize supply chains.

25% Tariffs Imposed on Mexico and Canada... Export Impact

The automotive sector, which accounts for the largest export volume from Japan, is under pressure to restructure supply chains due to President Trump's high tariffs and the repeal of EV incentives, reported Nihon Keizai Shimbun (Nikkei) on the 23rd (local time).

On the 20th (local time), President Trump announced plans to impose a 25% tariff on imports from Mexico and Canada starting next month, causing Japanese automakers to worry about tariff burdens.

Major global automakers have been manufacturing finished vehicles and parts in Mexico and Canada, where labor and production costs are lower than in the U.S., and exporting them to the U.S. Japanese automakers also have factories in Mexico and Canada and export to the U.S., with major finished vehicle manufacturers such as Toyota, Honda, and Nissan, as well as automotive parts companies, operating there.

Nomura Securities estimated the impact on operating profits of major automakers if the U.S. imposes an additional 25% tariff on vehicles imported from Mexico and Canada and a 10% tariff on those from China. The results showed that Mazda's operating profit would decrease by 44%, while Toyota and Honda would see reductions of about 20-30%.

Accordingly, Nikkei forecasts that supply chain reorganization will be unavoidable if the additional tariffs are actually implemented. Japanese companies plan to assess the impact of the tariffs and make investment decisions regarding Mexico and other locations.

Impact on U.S. EV Production as IRA Repeal Becomes Reality

Japanese automakers directly operating in the U.S. are also inevitably affected. This is because President Trump signed an executive order on the 20th that includes the repeal of policies promoting EV adoption.

Previously, Japanese companies had been investing in EVs and batteries in the U.S. under the 'Inflation Reduction Act (IRA)' of the Biden administration, which provided purchase subsidies (tax credits) for EVs produced in North America. Toyota has been investing a total of $13.9 billion (approximately 19 trillion KRW) since 2021 in a battery plant for EVs in North Carolina.

Honda plans to start operating an EV-only plant in Ohio by the end of this year. However, in response to the Trump administration's repeal of EV promotion policies, Honda stated it would proceed "in a way that allows flexible adjustment of production timing and volume."

Nissan had planned to sequentially produce five EV models at its Mississippi plant starting next year but canceled plans for small EV production. A Nissan North America spokesperson acknowledged the change on the 22nd (local time), telling Nikkei that "the Canton plant is focusing on other EV projects that can produce higher volumes."

Some U.S. media speculated that Nissan might consolidate small EV production at its Sunderland plant in the United Kingdom. Nikkei analyzed Nissan's production plan changes as being driven not only by efficiency measures for business restructuring but also as a response to policy changes under the Trump administration.

This content was produced with the assistance of AI translation services.