TOKYO -- Stocks of Japanese automakers slumped on Monday after a broad agreement between Tokyo and Washington on market access failed to address auto tariffs, a major issue between the sides.
Shares of Toyota Motor slid 2.4% before trimming losses to a 0.6% drop at the end of the trading day. Those of Honda Motor and Nissan Motor fell 1.4% and 1.5%, respectively, after falling about 3% in early trading.
Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump agreed on the broad outlines of a trade deal on the sidelines of the Group of Seven summit on Sunday. The agreement will give the U.S. access to Japan's agriculture market on par with the members of the Trans-Pacific Partnership. Trump pulled the U.S. out of the TPP early in 2017, but Japan ushered the trade pact, which includes other Pacific-rim countries like Canada, Mexico and Australia, to conclusion.
But Sunday's announcement, hailed by Trump as "Big Trade Deal," does not cover American duties on Japanese autos, much to the disappointment of Japanese carmakers. In 2015, the U.S. under President Barack Obama agreed to eliminate a 2.5% import duty on passenger cars and a 25% duty on pickup trucks from Japan, in exchange for greater access to the Japanese farm market.
The two sides will continue discussing auto tariffs in separate talks.
Some market players responded more positively to the deal. "The trade agreement has reduced the risks of additional auto tariffs by Trump, and should be seen as good news," said a Japanese broker. Last year, Trump threatened to impose additional tariffs of up to 25% on imported cars and car parts, citing national-security concerns.
With Sunday's announcement, the Japanese side considers the imposition of those levies on vehicles from Japan to be off the table, but that was not addressed explicitly in the agreement. Japanese negotiators will seek to have that guarantee spelled out by the time the deal is formally presented in September.
The drops in automaker shares on Monday were likely due more to increased uncertainty about the global economy than the details of the bilateral agreement.
Trump vowed further escalation in the trade war with China on Friday, tweeting that the existing 25% tariffs on $250 billion worth of Chinese imports will be hiked to 30% from Oct. 1, and that the planned 10% tariff on the remaining $300 billion in Chinese imports will instead be 15%.
The threat has dashed hopes for any easing in the friction and has reinforced fears of a protracted trade battle. That sent stocks lower and safe haven assets, including the yen, higher.
A stronger yen tends to make Japanese exports more expensive overseas and hurt the earnings of export-oriented businesses like automakers.