Study Warns That Free Trade Agreements With Japan Could Impact U.S. Auto Market

The Center for Automotive Research (CAR) produced a study that models Japanese automotive vehicle exports to the United States, and estimates the likely effect of a tariff reduction brought on by a Free Trade Agreement (FTA) between Japan and the United States that would be a characteristic of Japan’s inclusion in the Trans Pacific Partnership (TPP). Japanese vehicle exports to the United States are estimated to increase by 105,000 units or $2.2 billion (an increase of 6.2 percent) due to the elimination of a 2.5 percent tariff. As a result, U.S. vehicle production is estimated to fall by 65,100 units which CAR estimates would result in a loss of 2,600 direct U.S. automotive manufacturing jobs. An additional loss of U.S. supplier jobs is estimated at 9,000 and the loss of spin-off jobs at 14,900.

The study, “The Effects a Free Trade Agreement with Japan will have on the U.S. Auto Industry,” also examines the effect of changing exchange rates on Japanese vehicle exports. CAR’s exchange rate model for Japanese vehicle exports estimates that if the real yen/dollar exchange rate changed from a level of 90 yen/dollar to 100 yen/dollar, it would result in an increase of vehicle exports to the U.S. market of 15.1 percent, and a decrease from 90 yen/dollar to 80 yen/dollar will result in a decrease in exports of -15.1 percent, and in each case, the elimination of the 2.5 percent U.S. vehicle import tariff would increase exports by a further 6.2 percent.

CAR’s estimate of the increase in the number of Japanese vehicle imports is 362,800 in the case of the FTA and a depreciation of the real level of the yen/dollar exchange rate from 90 to 100. CAR’s forecast of production and employment loss in this case of a change in the exchange rate from 90 to 100 yen/dollar and the elimination of the 2.5 percent tariff as a result of a FTA is a loss of about 225,000 units of U.S. vehicle production.

“The combination of an FTA between the U.S. and Japan and a significant depreciation of the yen versus the dollar would have serious effects on production and employment in the U.S. auto industry,” said Sean McAlinden, executive vice president of research and chief economist at CAR.

CAR has significant experience conducting economic impact analyses and has carried out the majority of national level automotive economic contribution studies completed in the United States since 1992.

The report was written by McAlinden, and Yen Chen, a senior economist at CAR. Financial support for this study was provided by Ford Motor Company.