Japan’s carmakers slash export prices to US to offset tariff hit

[TOKYO] Japan’s automakers slashed the price of products exported to the US at a record pace, in a sign that companies are sacrificing profits to remain competitive as US President Donald Trump’s tariffs hit cars.

Last month, the export price index for vehicles shipped to North America plunged 19.4 per cent from a year earlier on a contract currency basis, the biggest drop in records going back to 2016, according to the Bank of Japan’s (BOJ) corporate goods price report on Thursday (Jul 10).

The data adds to signs that Japanese automakers are trying to avoid a major price increase to remain competitive in the US, even after Trump began to impose 25 per cent auto tariffs in early April. The flip side of the move is that it raises concerns over companies’ profitability and whether they can continue to keep raising wages, a key component of the BOJ’s sustainable inflation goal.

Thursday’s report also showed producer prices overall rose 2.9 per cent from a year earlier in June, slowing from 3.3 per cent in the previous month as the price of oil and steel declined.    

BOJ governor Kazuo Ueda said last week he is closely watching whether the wage-inflation cycle will be maintained in the face of the US levies, in order to determine the timing of the next rate hike. In addition to the auto and steel tariffs that are already in place, Trump announced on Monday that the across-the-board tariffs on Japan will be raised to 25 per cent starting Aug 1.

While Japanese automakers, including Subaru, have announced some price increases, Japan’s strategy of not raising prices too much has shown up in other data. Car exports to the US, which make up about a quarter of US-bound shipments, declined 24.7 per cent by value in May, but only 3.9 per cent by volume. BLOOMBERG