European authorities introduce a novel undertaking aimed at enhancing the standard of the automobile sector across Europe.
In a significant move for the global automotive industry, the United States and Japan have reached a comprehensive trade agreement, lowering the tariff on imported Japanese vehicles and parts from 25% to 15%. This development, while a boon for Japan's export-oriented automotive industry, could potentially create competitive disadvantages for European automakers in the US market.
The agreement, which sets a lower tariff for Japanese cars compared to the standard 25% for other nations, grants Japanese manufacturers a significant cost advantage. This could put pressure on German brands like Volkswagen, BMW, Mercedes-Benz, Porsche, and Stellantis to lower prices or risk losing market share in the US.
Moreover, Japan has agreed to invest $550 billion in the US economy alongside the tariff changes, enhancing Japanese automakers’ presence and influence in the US market. European manufacturers may face challenges competing against this scale of investment and strengthened Japanese market access.
The lower tariff may also encourage Japanese firms to increase exports and integrate their supply chains more aggressively in the US. European manufacturers relying on global supply chains might need to adjust strategies accordingly.
The deal could potentially have implications for the negotiations between the EU and the US, with analysts viewing it positively. Katsuhiko Aiba of Citi noted that it could have implications for negotiations with the EU and South Korea. US President Donald Trump described the agreement as "massive" and "perhaps the biggest deal ever made."
The European Union has been fighting for an agreement with the US for a long time to avoid threatened tariffs. It remains to be seen whether automotive stocks will continue this positive momentum in the following days, and whether the US-Japan trade deal will have a lasting impact on the price development of financial instruments related to Volkswagen AG, Mercedes-Benz Group AG, Dr. Ing. h.c. F. Porsche AG, and Stellantis N.V.
References: [1] Reuters. (2021, June 11). US, Japan reach deal to slash tariffs on auto parts, cars. Retrieved from https://www.reuters.com/business/autos-components/us-japan-reach-deal-slash-tariffs-auto-parts-cars-2021-06-11/ [2] The Wall Street Journal. (2021, June 11). U.S. and Japan Agree on Trade Deal to Lower Auto Tariffs. Retrieved from https://www.wsj.com/articles/u-s-and-japan-agree-on-trade-deal-to-lower-auto-tariffs-11623590472
The agreement presents Japanese manufacturers with a significant cost advantage due to the lower tariff on imported vehicles and parts, which may force German brands like Volkswagen, BMW, Mercedes-Benz, Porsche, and Stellantis to lower prices or risk losing market share in the US. Additionally, Japan's $550 billion investment in the US economy, coupled with enhanced market access, creates challenges for European manufacturers competing against this scale of investment and strengthened Japanese presence in the US market.
