As Nissan Motor slashes North American production by as much as 20%, the popular narrative is that the carmaker misread the market and is recalibrating accordingly. Yet two words are written between the lines in bold type: Donald Trump.
The U.S. president's newly-floated 25% tariff on imported autos has industry executives from Japan to Germany reconsidering their American consumer calculus. Sure, Nissan's move, reported by Nikkei on Tuesday, seems partly about reducing inventories and preparing new models to woo finicky millennials. But looking ahead to 2019, Trump's trade war is a fast-growing risk.
Japan's No. 2 automaker had already been slowing production in the U.S., where local output accounts for about 60% of sales, with the rest coming mostly from Japan and Mexico. Clearly Trump's tariffs could force a rethink in the North America production strategy of Nissan and its partners in the Renault-Nissan-Mitsubishi Motors triple alliance.
Industry leader Toyota Motor faces similar dilemmas. Ten U.S. Toyota factories employ at least 36,000 workers, not counting dealerships. But Toyota imports around 30% of the nearly 3 million cars it sells in North America annually. Its U.S. best-seller, the RAV4 sports-utility vehicle, and high-margin luxury models, are mainly shipped from Japan.
To make matters worse, Trump is also renegotiating the North American Free Trade Agreement with Mexico and Canada, which would raise the costs of both Japanese autos and parts produced in North America outside the U.S.
To be sure, China is Trump's main economic target. But Japanese automakers have been a key Trump proxy for perceived trade inequities since the late 1980s. In 1989, he said Japan's had "sucked the blood out of America." More recently, car imports were a huge applause line during Trump's 2016 presidential campaign.
Also, the president clearly has no qualms at all if the motor industry gets caught in the crossfire of the bigger conflict with Beijing. The same Trump voters will be cheering him on.
That puts the giant manufacturers -- German and South Korean as well as Japanese -- on the frontlines, unclear when the next shots may come.
Meantime, Trump is trying to find a way around the World Trade Organization, the rules of which once shamed U.S. leaders from adopting naked mercantilism, by deploying obscure and unexpected weapons. Hence his questionable use of "national security" concerns: with auto tariffs, the Commerce Department is reaching all the way back to a little-known 1962 law to protect domestic production. Section 232 of the Trade Expansion Act of 1962 authorized investigations of imports deemed detrimental to America's domestic defense.
But by behaving in such unpredictable and confusing ways, Trump is violating his once-prized bromance with Prime Minister Shinzo Abe.
Abe's geopolitical courtship has gone through many more downs than ups since his sprint to Trump Tower in November 2016. That gamble, nine days after Trump's shock election win, was aimed at saving Japan from the "America First" leader's bombast on security and trade.
Vouching for Trump as a "trustworthy leader" on the "same wavelength" as Abe's Liberal Democratic Party, though, did not keep Washington in the Trans-Pacific Partnership. Abe's outreach did not keep the U.S. in the Paris climate accord or stop it from renouncing the Iran nuclear deal. It did not preclude Trump from hitting the yen or slamming Toyota for opening a factory in Mexico rather than the U.S.
Abe's close ties with Trump did not win Tokyo a dispensation on steel and aluminum tariffs of 25% and 15%, respectively. They did not warrant a heads-up when Trump decided on a whim to announce plans for meeting North Korean leader Kim Jong Un face-to-face. Nor are they factoring much into Trump's calculus on Pyongyang. Case in point: White House officials hint that Trump might settle for Kim giving up his long-range missiles. The others that can still hit Japan? Sorry Shinzo, you are on your own.
This depressing pattern is playing out anew on Trump's 25% auto tariffs. If a RAV4 costs $25,000 at a showroom in Seattle or Cleveland today, it could soon go for $31,000.
This math might have a chilling effect on Japan Inc. This was supposed to be the year Abenomics finally scored a serious pay raise for long-suffering salarymen and women. Real wages fell 0.2% in 2017 despite epic Bank of Japan easing, record corporate profits and a roaring stock market. Nor are wages turning heads so far in 2018. The 0.8% rise in inflation-adjusted pay in March from a year earlier followed a 0.8% drop in February.
The risk is that Trump's trade levies leave executives even less inclined to share the wealth with workers. In March, Trump's Treasury secretary, Steven Mnuchin, effectively ended Washington's 23-year preference for a strong dollar, which increases the threat to Japanese profits.
The why of Trump' trade quarrel with China is well understood in Asia. Leaders comprehend the deep anxieties behind claims such as Beijing is "raping" American workers.
It is the how and the when that now worries Japan. The former is impossible to predict as this White House rummages around for half-decade-old rationales to do incongruous things. The latter is likely to track the worsening fortunes of the Trump White House.
It is impossible to say whether Trump will be in Singapore on June 12 to shake Kim's hand. Yet any follow-through from an agreement is likely to disappoint Trump. The Republican Party embarrassed itself with claims that a Nobel Peace Prize is imminent.
Pyongyang thinks in decades; Trump, the next tweet. The odds of any post-June 12 progress happening fast enough to please Trump loyalists are minuscule. Trump is almost sure to blame Xi, once again, for "influencing" Kim not to denuclearize. Disappointment would surely lead to bigger tariffs on China (Trump is preparing a fresh crackdown on Chinese tech), sending more fallout Japan's way.
Trump's legal troubles are another wildcard. As investigations intensify and risks of indictments swirl, Trump's desperation to change the news cycle could keep China back in the crosshairs. The same goes for Toyota, Nissan, Honda Motor and other Japanese carmakers -- and the supply chains on which they rely.
Talk about a geopolitical own goal for a White House already light on friends. A savvier former businessman would thank Japan Inc. for employing, all in, more than 1.5 million Americans. He would shield Toyota, Nissan and Honda from tariffs and call it a day. Instead, big Japanese companies and their supply chains are caught in a fight of their own and in the middle of a much larger trade war with China.
Abe needs to step up Trump lobbying efforts. While Japan's trade surplus with the U.S. is a fraction of China's, it may become a bigger point of contention as Trump seeks ways to cheer his voting base. Autos are sure to remain a particular target.
The U.S. market was challenging enough for Japan Inc. before Abe made his Trump Tower run. But as Trump conflates his China obsession with autos, Nissan, Toyota and their peers may struggle to keep their wheels rolling on an increasingly bumpy road.
William Pesek is a Tokyo-based journalist and author of "Japanization: What the world can learn from Japan`s lost decades." He is a former columnist for Bloomberg and Barron's.