US tariffs bite Japanese exports as automakers lift prices

Japan's economy continues to be hit by Donald Trump's tariff shock, even with a trade deal. The first data since the US president and Prime Minister Shigeru Ishiba reached an agreement showed the nation's exports fell 2.6% year-over-year in July, the sharpest decline in four years.

This disappointment was driven by shrinking shipments of cars and other manufactured goods, as our chart shows. (Vehicles and auto parts are a crucial sector, accounting for roughly one-third of Japan’s exports to the US.) We've highlighted the months since April, when auto shipments tipped into negative growth; this also coincides with the period when the US president applied a 25% auto tariff globally.

The agreement signed in July (whose final details are yet to be announced) saw Japan's auto tariff fall back to a baseline of 15%, in line with other imports from Japan.

As our second chart shows, Japanese automakers initially absorbed much of the tariff shock, cutting export prices to preserve their competitive position in the US market. Export price data demonstrates this steep decline in the early months of tariffs.

Still, concerns are mounting over the sustainability of this strategy, given the pressure on profit margins. In early August, Toyota cut its earnings guidance; Honda reported that its quarterly profit had halved.

We deployed data from Cox Automotive that breaks down price increases for different auto brands. It suggests that Japan's automakers might be shifting the tariff burden onto the US consumer at last.

Toyota raised its prices by an average USD 270 per vehicle in July, though it denied that this move was tariff-related. Mazda and Subaru, both heavily reliant on Japan-based production and therefore more vulnerable to US tariffs, also raised prices in July. Mitsubishi, whose production is also largely domestic, had already introduced price hikes in June. Nissan, which is still in the middle of a corporate turnaround, is the only automaker still cutting prices.

We've also tapped data from GFI that explores perceptions of creditworthiness for Japan's automakers. Spreads on credit-default swaps have generally widened since Trump's "Liberation Day" tariff announcement, reflecting concerns about profitability and export demand. Nissan, in particular, has the most-widened CDS among Japanese companies in any industry — overtaking both Rakuten and SoftBank earlier this year.

Weakness was not limited to the US market. Shipments to China — Japan's second largest export destination — also fell sharply, again driven by autos and machinery.

Looking ahead, risks to the downside remain. CEIC’s proprietary nowcast for Japanese exports is projecting further deterioration in August.

(The Bank of Japan could be watching closely — given that profitability pressures could constrain firms’ capacity to lift wages and disrupting the "virtuous cycle" of wage and price growth the central bank seeks.)

Click here to read about how Japan navigates US pressure and auto export dependence amid trade talks and Bank of Japan's upward inflation spiral: unpacking forecast revisions with Point-in-Time data.

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