Japanese Auto Stocks Soar on Tokyo Trade Agreement
Japanese and South Korean Automakers See Significant Gains
Shares of major Japanese and South Korean automakers experienced a notable surge following a recent trade agreement between the United States and Japan. The deal, which involves reducing tariffs on Japanese auto imports to 15%, has generated optimism about potential similar agreements for South Korea.
Toyota, the world’s leading automaker by sales, saw its shares jump over 14%, while Honda's stock rose more than 11%. This reduction in tariffs, from as high as 27.5% previously, is expected to provide relief to Japan’s most vital industry in a crucial market. South Korean automakers also benefited from the positive sentiment, with Hyundai Motor gaining over 7% and Kia rising more than 8%.
The agreement with Japan, the fourth-largest economy globally and a key U.S. ally in Asia, marks one of the most significant trade deals finalized by the White House before an August 1 deadline, when higher levies were set to take effect. Autos constitute over a quarter of Japan's exports to the United States. President Trump had previously imposed a 25% tariff on top of an existing 2.5%, resulting in a total levy of 27.5%. The new rate of 15% appears to include the pre-existing 2.5%.
Stefan Angrick of Moody’s Analytics noted that this change would offer "a sigh of relief" for Japan's struggling carmakers. In exchange, Japan has committed $550 billion in U.S.-bound investment and loans. Additionally, Japan will further open its markets to U.S. imports of cars, rice, and other goods.
Despite these benefits, challenges remain. Tariffs from Canada and Mexico are still in place at 25%. Mexico, in particular, serves as a key production hub for Japanese automakers like Nissan, which saw its shares rise 8%. The news of Japan's trade deal is likely to increase pressure on South Korea to negotiate its own agreement before the August 1 deadline.
South Korea's industry minister mentioned that Seoul is closely examining the U.S.-Japan deal. Given the competitive nature of the auto and steel industries between Japan and South Korea, the country is preparing for high-level trade talks with the United States on Friday.
For both nations, the auto industry plays a critical role in exports, manufacturing jobs, and national pride. Despite the presence of tariffs, the U.S. remains the most important market for major automakers such as Toyota, Hyundai, Honda, and Nissan.
Toyota's North American market is particularly significant, with the company selling 2.3 million vehicles there in 2024, including its Lexus brand. This accounts for more than a fifth of its global total. In terms of revenue, North America was second only to Japan in the last financial year.
Similarly, Hyundai's North American revenue reached its highest level in almost a decade in the previous year. These figures highlight the importance of the U.S. market for both Japanese and South Korean automakers.
As the automotive industry continues to navigate these trade dynamics, the impact of these agreements will be closely watched by investors and industry analysts alike. The future of trade relations between the U.S., Japan, and South Korea will play a pivotal role in shaping the global automotive landscape.