US president Donald Trump’s criticism of the North American Free Trade Agreement (NAFTA) has created widespread uncertainty among Japanese automakers seeking to open manufacturing plants in North America.
Since assuming the presidency, Mr Trump has vowed to renegotiate multilateral trade deals such as NAFTA in favour of bilateral agreements, where the US can exert greater leverage over its partners.
The president’s calls to renegotiate NAFTA, including his proposed 20% border tax on Mexican imports, have prompted several Japanese automakers to change production strategies. Most notably, Toyota announced a $600bn investment at an assembly plant in Indiana, which will result in the creation of 400 US jobs. Other Japanese automakers, like Mazda, are considering merging their operations with Toyota as a means of acquiring access to existing US manufacturing plants.
“Imposing a tariff would reduce the benefits for [Japanese automakers], as well as all the US companies that have located production facilities in Mexico,” said Stephen Woolcock, a trade specialist at the London School of Economics.
With an upcoming state visit to the US in February by Japanese prime minister Shinzo Abe, Japan’s policymakers are considering all options in response to a renegotiated NAFTA, including the establishment of a bilateral free trade agreement.