Japanese, South Korean, European Car Stocks Rise on Tokyo Trade Deal
Impact of U.S.-Japan Trade Deal on Global Automakers
Shares of Japanese, South Korean, and European automakers experienced a significant surge following the announcement of a trade deal between the United States and Japan. This agreement included a reduction in tariffs on Japanese auto imports to 15%, sparking optimism that similar arrangements could be reached with South Korea and the European Union.
Toyota, the world's largest automaker by sales, saw its stock jump over 14%, while Honda advanced more than 11%. The tariff reduction from as much as 27.5% previously is expected to ease the burden on Japan's most vital industry in a crucial market. South Korean and European automakers also benefited from the news, as they hoped for similar relief.
Hyundai Motor's shares increased by more than 7%, and Kia rose over 8%. In Europe, Volvo Car's stock climbed 14% to its highest level since May, while Porsche and Stellantis both gained around 7%.
The agreement with Japan, the world's fourth-largest economy and a key U.S. ally in Asia, marks one of the most significant trade deals struck by the White House ahead of an August 1 deadline when higher levies are set to take effect.
Key Details of the Trade Agreement
Automobiles account for more than 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%, announced by Prime Minister Shigeru Ishiba, appears to include the pre-existing 2.5%.
This development is expected to provide relief to Japan's struggling carmakers, according to Stefan Angrick of Moody’s Analytics. In return, Japan has pledged $550 billion in U.S.-bound investment and loans. Additionally, Japan will further open up to U.S. imports of cars, rice, and other goods.
"Lowering or removing trade barriers against U.S. vehicles won't make them any easier to drive on Tokyo's cramped streets, even if it would theoretically move the needle on Japan's surplus with the U.S.," Angrick noted.
Potential Benefits for Japanese Automakers
The reduced tariffs are likely to offer "significant upside potential" for the earnings of Japan's seven main automakers, according to Goldman Sachs analysts Kota Yuzawa and Ken Kawamoto. They estimated that the gross tariff impact for these companies—covering Subaru, Mitsubishi Motors, Suzuki, and Mazda—would decrease to 1.89 trillion yen ($12.9 billion) from 3.47 trillion yen previously.
Citi analysts highlighted that the tariffs for a major auto exporting country were reduced without a cap on shipments, which could have implications for negotiations with the EU and South Korea. However, challenges remain for Asian automakers, as tariffs from Canada and Mexico remain at 25%.
Mexico, in particular, is a critical production hub for European and Japanese automakers, including Nissan, and is home to a Kia factory. Nissan's shares rose 8%, while Stellantis, which produces around 40% of its North American vehicles in Mexico and Canada, also saw gains.
Pressure on South Korea to Negotiate
The news of Japan's trade deal is expected to increase pressure on South Korea to secure its own agreement before the August 1 deadline. South Korea's industry minister stated that the country is closely examining the U.S.-Japan deal. South Korea competes with Japan in areas such as autos and steel and is preparing for high-level trade talks with the United States on Friday.
For both Japan and South Korea, the auto industry represents a major export sector, provides millions of manufacturing jobs, and holds deep national significance. Despite the current tariffs, the U.S. remains the most important market for automakers like Toyota, Hyundai, Honda, and Nissan.
At Toyota, North America accounts for at least 40% of revenue, with the region selling 2.3 million vehicles in 2024, including the Lexus brand. For Hyundai, North American revenue was the highest in nearly a decade last year.
Significance for European Automakers
The U.S. is also a key market for European automakers. According to data from the European auto association ACEA, Europe shipped nearly 758,000 cars worth 38.9 billion euros ($45.57 billion) to the U.S. in 2024, more than four times as many as in the opposite direction. This highlights the importance of the U.S. market for European automakers as well.