Auto Industry Downturn Could Shake Japan’s Economy; Blow to Exports Could Undermine Wage Hikes

By Minoru Akita / Yomiuri Shimbun Staff Writer

6:00 JST, May 10, 2025

Given that the automotive industry serves as the “backbone” of the Japanese economy, a decline in its performance could undermine the drive for higher wages in the country.

With its extensive reach encompassing global corporations such as Toyota Motor Corp. and numerous small- and mid-sized parts suppliers, the industry supports 5.58 million jobs.

Japan’s annual automobile exports are worth about ¥20 trillion, accounting for 20% of the country’s overall exports. Of the exported units, 30% are destined for the United States, making it a significant market.

Amid this situation, the United States imposed an additional 25% tariff on automobiles on April 3 and on auto parts on May 3.

Recent figures reflect emerging macroeconomic challenges. As a result, the Bank of Japan significantly lowered its fiscal 2025 projection for econmic growth from 1.1% to 0.5%.

According to estimates by Daiwa Institute of Research Ltd., the implementation of “uniform reciprocal tariffs” of 10% by the United States is expected to lower Japan’s growth rate by 0.3%.

Sector-specific tariffs on automobiles and steel, among others, would lead to an additional 0.45% decrease.

The impact from tariffs on automobiles alone accounts for 0.36 percentage points, or 80%, of this decrease due to that industry’s high dependence on exports to the United States.

“Automobile tariffs will have the most substantial negative impact on the Japanese economy,” said Shinichiro Kobayashi of Mitsubishi UFJ Research and Consulting Co.

“The substantial involvement of small- and medium-sized enterprises in parts manufacturing could result in considerable damage to the real economy, underscoring the urgent need to protect this sector,” he said.

Major automakers, led by Toyota, have enjoyed strong performance due to the weak yen and have led the trend of significant wage increases in recent spring labor negotiations.

However, should they lose momentum due to adverse conditions such as tariffs and a stronger yen, the nationwide drive for higher wages could diminish, potentially resulting in reduced personal spending.

“The wage increases that have become established are in danger of being rolled back,” said Japan Chamber of Commerce and Industry Chairman Ken Kobayashi.

The United States has said it will not include automobile tariffs in the agenda for trade negotiations with Japan, raising expectations for challenging discussions.

Economic revitalization minister Ryosei Akazawa expressed growing concern, saying: “[Major automobile manufacturers] are incurring hourly losses. We seek to conclude this matter with utmost haste.”