Trump auto tariff U-turn gives everyone whiplash

President Donald Trump's auto tariff U-turn is making everyone carsick. His latest deal cuts US tariffs on Japanese vehicle imports to 15 percent from a previous total of 27.5 percent, offering respite to companies that haven't invested heavily in Stateside production. But relief could be short-lived.

Although Trump set out to support US manufacturers like General Motors, Ford Motor and Stellantis, the Detroit Three hailed the move as a "bad deal" for American workers and industry. It's perhaps most helpful for Mitsubishi Motors, which Citi estimates made nearly three quarters of its US-sold autos in Japan in 2024. Before Wednesday's deal, the $4 billion group looked to be in a dire position, as it has no major manufacturing hubs outside Asia. Meanwhile, shares in peers Mazda Motor and Subaru, which made around half their vehicles destined for American roads at home, rose by more than 15 percent on Wednesday.

 The status quo is unexpected for other reasons too. Trump himself signed the US-Mexico-Canada Agreement in 2020, sanctioning the continuation of largely duty-free trade between the trio. The US is the largest single market not only for the major American marques but also for Toyota Motor, Honda Motor and Nissan Motor, and all of them have factories throughout the region to take advantage of the USMCA. Those Mexican- and Canadian-made cars still face duties of 25 percent.

Some can handle sharp turns. Toyota, for example, sold 2.3 million cars in the US in the 12 months to the end of March and produced 2.1 million cars in North America, but it doesn't depend solely on local facilities. In fact, it imported from Japan 24 percent of cars sold in the US in 2024, per Citi. The world's largest carmaker is also more profitable than Honda or Nissan – its operating margin was around 10 percent in its most recent financial year – meaning it can more easily"] absorb the extra costs from heftier duties.

There will be more twists. On Sunday, US Commerce Secretary Howard Lutnick said Trump will "absolutely" renegotiate USMCA. Japanese and US automakers are also watching closely to see whether Seoul can argue for lower levies for Hyundai and Kia . Those brands accounted for over a tenth of the American market in the first six months of this year, Cox Automotive reckons.

And the Hyundai group's local production capacity covered only 40 percent of the cars they sold there last year, per Moody's. For now, they face 25 percent rates, with tariffs already costing Hyundai Motor more than $600 million, the company said on Thursday.

Longer term, automakers might decide the simplest solution is to invest more in the US itself; Toyota, Hyundai and others have started down that route. But expanding production takes years. In the meantime, carmakers and investors will be nursing whiplash.

Tariffs on Japanese cars imported to the US will fall to 15 percent from the previous 27.5 percent level, according to the terms of a trade deal agreed between Japan and the US on July 23.

Shares in Toyota Motor closed up 14.3 percent on July 23. Mitsubishi Motors rose 13 percent, Nissan Motor climbed 8.3 percent, while Honda Motor was up 11.1 percent.