U.S. President Trump announced plans to increase import tariffs on automobiles by 25%on April 2. The United States' decision to increase import tariffs on automobiles not only risks further escalating tensions with its trade partners but also compresses the market space for foreign car manufacturers in the U.S., particularly Japan’s automotive industry, which is highly dependent on the American market. How will the 25% tariff hike affect Japan's market share, production layout, and overall economy? And how should Japanese companies reliant on the U.S. market respond to this change?

Recently, Professor Lijian SUN, Director of the Financial Research Center at the Fudan Development Institute, was interviewed by 21st Century Business Herald to provide insights on this issue. He believes that the U.S. is imposing these tariffs to force manufacturing industries to return through cost pressures, aiming to address industrial hollowing-out and trade deficits. This move will have multiple impacts on Japan’s automotive sector, including weakening its price competitiveness, shrinking its market share, forcing supply chain adjustments, and triggering ripple effects across related industries (such as steel and machinery). Additionally, it will heighten Japan’s economic reliance on a single industry, potentially leading to rising unemployment, regional economic decline, and the erosion of its technological edge.

In the short term, Japanese car manufacturers may respond by shifting production to the U.S., sharing costs, or exploring other markets. However, in the long run, Japan will need to restructure its economy, strengthen technological innovation, and enhance regional cooperation to mitigate risks. Otherwise, industrial hollowing-out could lead to an economic stagnation similar to Japan’s Lost 30 Years, further weakening its competitiveness in global manufacturing.

Furthermore, if the U.S. insists on prioritizing its own interests at the expense of others while undermining the principles of the global governance system, such a distortion of incentives may prompt Western economies to establish cooperative mechanisms that bypass the U.S. This, in turn, could heighten the risk of global stagflation.

Translated by Yuyao ZHAO

Full text in Chinese available at: 

https://fddi.fudan.edu.cn/f9/b6/c18965a719286/page.htm