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Trump's Toyota tweet jolts corporate Asia

Tax threat has companies second-guessing North America strategies

TOKYO A Donald Trump tweet about Toyota Motor's production plans has sent shock waves through corporate Japan and across Asia, potentially opening the door for wholesale revisions of North American business strategies.

Toyota intends to open a $1 billion plant in Mexico in 2019. However, in a tweet on Jan. 5, the president-elect said "NO WAY" to the idea of Toyota using the facility to export Corollas to the U.S. He said the company should either build the facility in America or expect to pay a "big border tax."

Trump has unleashed plenty of rhetorical ammunition on manufacturers who make products in Mexico for sale across the border. Prior to the Toyota tweet, there was little sign of concern in Japanese business circles. "If high import tariffs are slapped on cars being imported into the U.S. from Mexico," one auto executive said, "then General Motors and Ford Motor will be left in a bind."

But after Ford, seemingly bending to the pressure, announced on Jan. 3 that it was scrapping plans to build a factory in Mexico, Trump turned his attention to Japan's top automaker. This is giving many corporate players pause.

"Mexico presents a risk" when it comes to new investment, Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives, said on Jan. 6.

Yorihiko Kojima, senior corporate adviser at Mitsubishi Corp., was similarly unnerved. "The world will become a different place" after the real estate mogul's inauguration on Jan. 20, he said.

Automakers took a beating in the Tokyo stock market on Jan. 6, with Toyota sinking 1.7%. Nissan Motor, which has the largest Mexican production base among Japanese carmakers, fared even worse, skidding 2.2%. Mazda Motor fell 3.2%.

Toyota stressed in a statement that "production volume or employment in the U.S. will not decrease as a result of our new plant in Guanajuato, Mexico." Speaking at the North American International Auto Show in Detroit on Jan. 9, Toyota President Akio Toyoda announced that his company will invest $10 billion in the U.S. over five years to produce new models and boost productivity -- an apparent nod to the pressure to create jobs in America.

PRECARIOUS POSITIONS Economic friction between Japan and the U.S. peaked in the 1980s. The countries eventually smoothed things over, with the Japanese side adopting voluntary export restrictions and building plants in the U.S. But highly competitive Japanese vehicles still present an appealing target.

Automakers are hardly the only Japanese companies finding themselves in an uncertain position. Asahi Glass, which makes automotive glass in Mexico, plans to hold off on further capital spending and take a wait-and-see approach. Chemical group Asahi Kasei is looking at producing functional polymers south of the border but has yet to fully sign off on the investment.

The Mexican facilities of precision motor maker Nidec could redirect their output to South America, Chairman and President Shigenobu Nagamori said on Jan. 6, adding that the company "can also export to the U.S. from China and Europe." Nagamori suggested he will look into expanding parts production in the U.S., too, if more cars wind up being produced in the country.

Other Asian manufacturers are anxious, too. Taiwanese electronics contract manufacturers such as Hon Hai Precision Industry -- better known as Foxconn -- Inventec and Wistron all have production lines in Mexico. Hon Hai in December said it is in preliminary discussions on an investment that would expand its U.S. operations. Inventec, a supplier to HP, Dell and Apple, has expressed a willingness to shift some production to the U.S. if customers prefer it.

South Korea's LG Electronics is expected to announce plans for U.S. washer and refrigerator production lines, while Samsung Electronics is weighing the merits of building a home appliance plant in the U.S.

One optimistic American economist characterized higher tariffs and other threats as nothing more than bargaining chips. Many in the incoming Trump cabinet understand how business works, the thinking goes. But it is also true that the new administration is populated with hard-liners on trade and commerce. It is hard to rule out the possibility of retaliatory measures against recalcitrant corporations or countries.

Trump would run into some complications if he tries to make good on his threats. While the U.S. president has the power to raise duties on certain imports, doing so would fly in the face of rules set by the World Trade Organization and the North American Free Trade Agreement.

NAFTA allows tariff-free imports of cars into the U.S. from Mexico and Canada. Any changes would require negotiations by member countries. If Trump wants to impose a 35% border tax on Mexican imports, he would need national security reasons or an extremely lopsided trade balance, among other prerequisites.

Only entire countries are subject to tariffs under the WTO, meaning companies like Toyota cannot be singled out for punishment. Should the administration press ahead, the affected country would likely file a grievance.

"An enactment of higher tariffs would run afoul of WTO rules," said a source close to the Japanese government. "If any material maneuver were to occur, we would be forced to consider some kind of countermeasure."

WORKING-CLASS PAIN As a candidate, of course, Trump threatened to withdraw from the WTO and NAFTA. He has since adjusted his stance, but he might renew the threats if his desired tariffs are obstructed. Trump has famously talked about slapping a 45% duty on Chinese goods as well.

If the new president does push to turn his protectionist rhetoric into policy, angry trade partners would not be the only consequence. Corporations might take a cautious approach on investment in not only Mexico but also the U.S. during Trump's time in office. And American consumers would pay a price.

The U.S. imports roughly 2 million autos a year from Mexico. In value terms, about 30% of imported car components come from Mexico. If Trump halts free trade between the neighbors or forces manufacturing jobs back onto U.S. soil, where costs are higher, Americans would end up forking out more for vehicles.

Ford moving production of the Fusion from Mexico to Michigan would entail a $1,200-per-vehicle premium, according to the U.S.-based Center for Automotive Research. This might not sit well with the white working class that put Trump in office.

Neither would a projection by the National Foundation for American Policy. The organization said that Trump's tariffs on Mexican, Chinese and Japanese imports would hit the least-well-off Americans hardest, wiping out nearly 20% of the after-tax income of the lowest-earning families.

Nikkei staff writers Cheng Ting-fang in Taipei and Kim Jaewon in Seoul contributed to this report.

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