U.S. trading partners expressed alarm on Wednesday about threatened American tariffs on imported cars, which could hit allies hard and disrupt the industry around the world.
The Trump administration’s plan, which could involve tariffs of up to 25%, follows an earlier battle over steel tariffs and puts the U.S. on a collision course with three of its closest military allies—Japan, South Korea and Germany—all of which are major car exporters.
“If it comes into effect, it would cause very broad restrictions on trade and create disarray in global markets. It is very regrettable,” said Tokyo’s trade minister, Hiroshige Seko.
Allies at Risk
Japan, Germany and South Korea are all U.S. allies and major car exporters to the U.S.
Where cars sold in 2017 in the U.S. were made
TOTAL
17.3 MILLION
Other 3%
South Korea 4%
Germany 4%
Japan 11%
Canada 11%
Mexico 11%
Nafta
U.S. 56%
78%
Source: Center for Automotive Research
Toyota Motor Corp. closed down more than 3% in Tokyo trading, and fears of a trade war helped drive the overall Tokyo market 1.1% lower. In South Korea, which sends a third of its car exports to the U.S., Hyundai Motor Co. shares fell 3.5%.
Europe’s auto sector fell 1.5% Thursday morning, with shares of BMW AG BMW -2.65% down 2.6%, Volkswagen AG down 2.1% and Daimler AG DMLRY -2.38% down 2.4%. The German companies generate 17%, 15% and 25% of their revenue in the U.S., respectively, according to FactSet.
The Commerce Department said Wednesday that the Trump administration might use national-security laws to impose tariffs on car and auto-parts imports. President Donald Trump said on Twitter Wednesday, “There will be big news coming soon for our great American Autoworkers.”
The Trump administration recently reached a revised free-trade deal with South Korea and is negotiating with China on a broad range of trade issues, while planning to do the same with Japan. The threat of car tariffs could affect those talks, although it isn’t yet clear how.
Outside of Canada and Mexico, which have a free-trade agreement with the U.S., Japan is the biggest exporter of cars to the U.S. About 11% of light vehicles sold in the U.S. in 2017 were imported from Japan, according to the Center for Automotive Research, an Ann Arbor, Mich., think tank. The center said 56% of the vehicles sold in the U.S. were American-made, while Canada and Mexico accounted for an additional 22%.
To reduce political risk and respond more quickly to market demand, Japanese auto makers have invested billions of dollars since the 1980s increasing production in the U.S. But exports still account for a big percentage of sales at companies such as Toyota and Nissan Motor Co.
Mr. Trump, a critic of Japan’s trade practices for decades, has already put the U.S. ally in his crosshairs with a 25% tariff on steel. His administration gave temporary or permanent exemptions from that tariff to many allies, but not Japan, prompting a threat by Tokyo at the World Trade Organization to retaliate.
Collectively, Japan sent 1.7 million vehicles to the U.S. last year, and the figure is rising. One reason is American car buyers’ preference for sport-utility vehicles and trucks, which caught the Japanese makers unprepared. They have historically relied on sedan sales and produce most of those in the U.S., but they must rely on Japanese factories to meet the demand for SUVs.
Toyota’s most popular vehicle in the U.S. is the RAV4 SUV, which isn’t made at any of its U.S. factories. More than half are sent from Japan and the rest come from Canada. RAV4 sales are up 9% this year.
Nissan’s best-seller in the U.S. is the Rogue SUV. More than half of the Rogues sold in the U.S. are imported from Japan and South Korea.
Toyota and Nissan declined to comment on the threat of U.S. tariffs and referred to an industry group’s statement that the move, if carried out, would lead to fewer choices and higher prices for American consumers.
South Korean auto factories would also take a blow from tariffs—including some owned by General Motors Co. About a quarter of the 519,000 vehicles made last year in South Korea by GM Korea were shipped to the U.S. If the Detroit auto giant were hit with Mr. Trump’s tariffs, “it would be such an absurd and nonsensical thing,” said Jung Yong-jin, an auto analyst at Seoul-based Shinhan Investment Corp. GM Korea officials weren’t immediately available for comment.
Chinese auto makers barely export to the U.S. at present, but the Trump administration’s proposed tariffs would affect investment plans years in the making.
Global auto makers are increasingly using China as a manufacturing hub. Ford Motor Co. is shifting its global production of the Focus compact car to China, with the expectation that many of those vehicles will be shipped to the U.S.
Chinese Foreign Ministry spokesman Lu Kang said the U.S. rationale for tariffs was unjustified. “We are opposed to the abuse of the national-security clause,” he said. “This will undermine the multilateral trading system.”
Volvo Car Group, which is Chinese-owned, also builds in China for global export. “U.S. tariffs going up would be very bad for us,” said Hakan Samuelsson, Volvo’s chief executive, in an interview earlier this month.
Mr. Samuelsson said it would be unfair to penalize a company like Volvo for selling Chinese-made cars in the U.S. because the company is also building a U.S. plant that will create 4,000 jobs in Charleston, S.C., with half of that facility’s production destined for export.
A tariff on auto parts would hit Chinese companies more directly. The U.S. imported parts valued at $17 billion last year from China, according to customs data—second only to Mexico. That means American consumers might have to pay more for their new cars even if they are U.S.-made because the parts inside would cost more, and replacing old parts could also get costlier.
The U.S. study of tariffs on cars and auto parts stands in contrast to China’s move to slash tariffs on the same items. Chinese tariffs on vehicles will fall to 15% from 25% starting July 1, while auto-parts tariffs will fall to 6% from between 8% and 25%, the government said Tuesday.
—Megumi Fujikawa in Tokyo, Kwanwoo Jun in Seoul, Yoko Kubota in Beijing and Riva Gold in London contributed to this article.
Write to Sean McLain at sean.mclain@wsj.com and Trefor Moss at Trefor.Moss@wsj.com
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