


Japanese consumers want cars that American carmakers don’t sell. That’s pretty much it.
One of the common refrains about alleged unfairness in global trade is that Japanese car brands sell well in the U.S., but U.S. brands hardly sell at all in Japan. This is supposed to be prima facie evidence of some kind of nefarious plot by the Japanese to keep U.S. cars out of their country, while still having the nerve to . . . sell Americans reliable and affordable cars that they want to buy.
This is probably a leftover from Trump’s Japan fearmongering from the 1980s, but it has nonetheless been repeated by others in his administration. Deputy Chief of Staff Stephen Miller said Japan and South Korea have “shut their markets to our cars while our market has been flooded with theirs.” This was supposed to be one of the major “problems” that the now-paused tariffs would help solve.
The administration has also been obsessed with “nontariff barriers” because actual tariffs are low or nonexistent for most trade between developed countries. As Gearoid Reidy wrote for Bloomberg, Japan has not levied tariffs on imported cars since 1978. The U.S. taxes imported cars at 2.5 percent. It’s one of many cases where the true “reciprocal” tariff rate for the U.S. would be zero.
So why do American cars not sell in Japan? Reidy writes:
American companies have simply failed to produce cars that appeal to local tastes. Japanese drivers want compact, fuel-efficient vehicles that balance excellent safety and reliability with superior value for money. Forget US manufacturers, it’s hard enough for most domestic makers to compete with these demands, which is why Toyota Motor Corp. is responsible for one out of every two cars sold in the country.
Furthermore, fully one-third of sales are kei cars, ultra-light vehicles with small engines that are taxed at a lower rate. It’s a category no US maker even builds. The most popular American autos, meanwhile, are simply too big for Japanese roads and parking spaces. Some versions of the Ford F-150, long the top-selling vehicle in the US, are so ludicrously large they can’t even be driven in the country with a standard driver’s license.
Japanese consumers want cars that American carmakers don’t sell. That’s pretty much it. It would be just as true in the other direction if Toyota or Honda tried to sell kei cars in the U.S. But they don’t. Toyota or Honda’s offerings in the U.S. market are tailored to U.S. tastes and are completely different from their offerings in the Japanese market. American car brands simply have not put in the effort to crack the Japanese market. It probably isn’t worth it for them because, as Reidy says, it’s hard enough for Japanese brands to compete there.
There’s one exception: Jeeps. They sell far better in Japan than any other U.S. brand. The tariff rate of zero is exactly the same for Jeeps as for other American cars. But Jeep has put in the effort to localize its product for Japanese tastes, and the distinctiveness of the Jeep brand is appealing to Japanese in a way other brands are not.
Transportation more generally in Japan is very different from in the U.S., given Japan’s high population density (about nine times higher than in the U.S.), mountainous island geography, and heavily used passenger railroads. This is where the whole “nontariff barrier” question becomes murky. Is Japan’s fundamentally different transportation system that is poorly suited to the style of cars that U.S. brands make an unfair restraint on trade? That’s the true cause of the trade imbalance. If one believes, as the administration appears to, that all trade would be perfectly balanced if not for other countries’ behavior, then Japan would need to — I don’t know, create an entirely new country with a U.S.-style transportation system to remedy the situation?
On the U.S. side of the market, customers consistently want larger vehicles such as pickup trucks and SUVs. It makes perfect sense for U.S. car brands to specialize in those.
Another reason for this specialization, though, is U.S. government interference in the car market. CAFE standards, which scale fuel efficiency requirements by the size of a vehicle’s footprint, make it more cost-effective for U.S. brands to sell larger, more expensive cars. Toyota in particular is well-suited to thrive under the CAFE rules because it has focused more on selling hybrid vehicles that meet those standards while U.S. manufacturers have been obeying the federal government in the transition to fully electric vehicles.
The Japanese could make a big stink out of the CAFE standards if they wanted to, since their car companies don’t specialize in the larger vehicles that those standards encourage. Kei cars are banned in some U.S. states. Are these nontariff barriers to trade? I think there’s a case to be made that these restrictions should be repealed for the sake of U.S. consumers’ freedom, but the Japanese don’t seem too upset about it.
There are all kinds of reasons why trade between countries won’t involve exactly the same stuff crossing the border in both directions. A lot of those reasons are simply the preferences and tastes of consumers in each country. Because different people in different places buy different things — and the cool thing about free trade is that we can still make each other better off despite that fact.