Economy

Japan-U.S. car dispute threatens Obama’s trade plans

McClatchy

First in a series

After buying his racy 2005 Dodge Viper for $85,000, Tomomitsu Chiyoda still drives mainly in the slow lane on Japanese roads, he said, making it easier for spectators to take photographs of his silver convertible from the United States.

“They always take a picture with their mobile phone,” said Chiyoda, 37, who owns a warehouse distribution company in Saitama, Japan. “Even if it’s freezing cold, I open the roof all the time. . . . You can see how I love America.”

U.S. trade officials can only wish there were more Japanese consumers like him.

Chiyoda is a rarity in Japan, which imported only about 20,000 cars from the United States last year. That’s less than 1 percent of the vehicles sold in the vast nation of 127 million people, the 10th most populous in the world.

U.S. autoworkers and their allies in Congress complain that the situation has grown so dire that only one American car is sold in Japan for every 130 Japanese cars sold in the States.

That imbalance is threatening to derail the proposed Trans-Pacific Partnership, President Barack Obama’s big plan to expand business ties throughout Asia with the largest trade pact in history.

The stakes extend beyond the auto industry. Japan is the fourth-largest trading partner for the United States, behind Canada, Mexico and China. Three states – California, Washington and Texas – accounted for nearly 40 percent of the $65 billion in exports sent to Japan last year. Japan exported more than twice as much to the U.S., with the value exceeding $138 billion.

Reversing the trend in car sales won’t be easy.

“If you look at history, you have to be skeptical,” said former Vice President Walter Mondale, who left Tokyo in 1996 after serving three years as U.S. ambassador to Japan. “When I was there, it was hard to get any changes whatsoever. Laws and habits were established that are hard to change now.”

Sales via ‘California concept’

At the Bubo Yokohama auto dealership in Yokohama city, Michio Ikoma, who manages imports, said American cars were viewed as unreliable gas guzzlers, too expensive and too big to navigate Japan’s crowded roads. The dealership sells 15 to 20 American cars per month.

To woo customers, Ikoma tries to make them feel as if they’re in America: He uses what he calls a “California concept,” pointing to the classic American black-and-white checkerboard floor in his showroom, where old Beatles tunes are blaring.

But it’s still a tough sell.

“It’s difficult – it’s really difficult,” Ikoma said. “Toyota equals trust.”

Opponents of the trade deal fear that a flood of Japanese cars would enter the United States at lower cost if the U.S. agreed to drop tariffs on them to try to gain more access to Japan’s protected markets for beef and pork, rice, dairy, sugar and wheat products.

With cars already responsible for nearly 70 percent of the U.S. trade deficit with Japan, critics worry that the gap will only swell – resulting in tens of thousands of lost American manufacturing jobs – if something doesn’t change.

The issue has been a point of contention for U.S. officials for decades. Only 6 percent of the cars sold in Japan are foreign-made.

In 1982, as Mondale began seeking votes for the Democratic presidential nomination, he told U.S. steelworkers that there was one way that domestic auto companies could sell cars in Japan: “You better have the United States Army with you when they land on the docks.” It was a time when many U.S. union workers displayed bumper stickers that read: “Hungry? Eat your foreign car.”

Mondale, who’s never bought a Japanese car, called it “a regrettable statement,” but he said little had changed.

“I’m not anti-Japanese. Honest to God, I’m not. I really love the country,” Mondale said. But he added: “We tried very hard to open the Japanese market in many different ways. On cars, I don’t know that much has happened.”

The numbers tell the story: Last year, U.S. cars accounted for only 0.03 percent of the autos sold in Japan, down from 1.6 percent in 1996, when Mondale resigned as ambassador to practice law in Minneapolis. Last year’s sales comprised seven buses, 1,304 trucks and 20,185 cars.

Despite the low numbers, Mondale said Japanese car companies “took a lot of poison out of the issue” when they began opening manufacturing plants in the United States.

That’s a big selling point for Japanese car manufacturers, who boast that a record 71 percent of the Japanese-branded vehicles sold in the United States last year were built in North America. They note that Japanese auto companies have invested more than $40 billion in U.S. plants since the 1980s, employing more than 400,000 Americans last year.

Issue is fewer choices, or high cost?

As for the Japanese market, Ron Bookbinder, the general director of the Japan Automobile Manufacturers Association USA in Washington, D.C., said U.S. manufacturers simply weren’t providing consumers with enough choices.

“In Japan, people don’t want big vehicles,” he said. “They want very, very tiny vehicles.”

Bookbinder said 90 percent of the cars sold in Japan were equipped with engines of 2 liters or less. And he said European manufacturers had outpaced the United States in offering more of them, opening more dealerships and spending more on advertising. As a result, he said, European vehicles accounted for 5 percent of the Japanese market last year.

“The Japan market is not closed,” Bookbinder said. “The European success there points to that.”

But Ikoma, who’s run the Yokohama dealership for six years, said the Japanese market was effectively closed because of big cost differences. He said the American cars he sold cost an average of 20 percent more in Japan than they would in the U.S. He blamed regulations that require U.S. cars to be retooled and a tax code that imposes higher rates on cars with larger engines as a way to discourage their use.

He counts on buyers who don’t worry about the additional cost.

“For sure, the Japanese market is closed,” Ikoma said. “Toyota is Number 1, but there are some people who don’t want to follow the majority. Some people see an attraction in a huge car or a huge engine. We take advantage of that.”

The car spat has taken center stage in the long-delayed talks over the Trans-Pacific Partnership, a proposed 12-nation trade pact that Obama has pushed hard to conclude.

The U.S. auto industry had fought against allowing Japan to join the pact last year, warning that the lopsided car trade would benefit Japan more in the long run.

Now many predict that the outcome of the whole deal will hinge on whether the United States and Japan can agree on new trade rules for cars and crops, two of the final major sticking points.

“Everyone really feels like as Japan goes, so goes the TPP,” said Eric Schinfeld, the president of the Washington Council on International Trade in Seattle.

What if there’s no deal?

If the talks collapse, trade backers fear that might have widespread effects throughout the U.S. economy, particularly in states that depend on business with Japanese companies.

For example, Texas cattle growers, who lead the U.S. in beef exports, could lose a chance to get rid of tariffs on their beef sold in Japan.

Washington state exporters might have a tougher time selling their cherries, frozen french fries, hay and even specialty items such as raw fur skins to Japan.

California wineries could be stuck with import duties on their increasingly popular wines sold in Japan.

Energy companies nationwide might face complications as they try to provide Japan with more imports to ease a shortage caused by the shuttering of its nuclear plants in 2011.

Earlier this year, Obama said he wanted to finalize a trade deal by November, when he traveled to Asia. Despite the missed deadline, the Obama team remains optimistic. Many hope that Japan’s sputtering economy will force that country’s negotiators to give in to more U.S. demands. But even if a deal is struck, it might have trouble passing a Congress divided on trade.

Chiyoda is following the talks closely, cheering for them to wrap up and hoping that cars become less expensive in Japan and the United States.

He said he was a big fan of American cars even though they’d never compete with Japanese quality.

“Quite often people say that American cars are easy to break down and that Japanese cars never break,” he said, speaking through an interpreter.

So why did he spend $85,000 on an American car?

“I like it because it’s wild,” Chiyoda said. “They’re a symbol of the American dream. I’m a minority, but I just want to show my identity with this American car.”

Then he laughed at his decision.

“No reason – just because,” he said. “I hate logical things.”

Next Monday: A big demand for beef tongue means big business for U.S. cattle producers.

  Comments