image

Donald Trump

After being threatened with border tax, Toyota reminds Trump it contributes billions to US economy

PUBLISHED : Friday, 06 January, 2017, 4:13pm
UPDATED : Saturday, 07 January, 2017, 1:33am

Japanese officials have defended Toyota’s contribution to the US economy after Donald Trump threatened to impose a “big border tax” on the carmaker if it went ahead with plans to open a new plant in Mexico.

Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for US. NO WAY! Build plant in US or pay big border tax
Donald Trump tweet

Trump’s tweet was followed by Toyota shares dropping more than 3 per cent in morning trade in Tokyo on Friday. Shares in Nissan and Honda also fell as unease in Japan grows over the effects Trump’s “America first” economic policy could have on cross-Pacific trade.

Japan’s chief cabinet secretary, Yoshihide Suga, defended the role Japanese manufacturers and other firms play in the US economy. “Toyota has been aiming to be a good corporate citizen for the United States” he said.

The automaker did not directly address Trump’s reference to the Mexico plant, but pointed to its contribution to the health of the US economy. “With more than US$21.9 billion direct investment in the US, 10 manufacturing facilities, 1,500 dealerships and 136,000 employees, Toyota looks forward to collaborating with the Trump administration to serve in the best interests of consumers and the automotive industry,” Toyota said in a statement.

The economy, trade and industry minister, Hiroshige Seko, said the carmaker had contributed to the creation of American jobs.

“Japanese automakers are making significant contributions in terms of jobs in the United States,” he told reporters. “It is important that their efforts and results are widely accepted. This is an issue involving a private company but the government is ready to support it.”

Japanese firms employ more than 800,000 people in the US and contributed US$78bn to US exports in 2014, according to the US embassy in Tokyo.

Weeks after Trump dismayed Japan’s prime minister, Shinzo Abe, with a vow to rip up the Trans-Pacific Partnership free trade agreement as soon as he is inaugurated on January 20, Trump tweeted that Toyota would face high tariffs if it builds its Corolla cars at a new US$1 billion plant in the Mexican state of Guanajuato.

“Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for US. NO WAY! Build plant in US or pay big border tax.”

The president-elect appeared to confuse Toyota’s existing plant in Baja California with the new factory in Guanajuato, construction on which began in late 2016. The Guanajuato plant will build Corollas and have an annual capacity of 200,000 when it begins production in 2019.

Trump’s outburst came hours after Toyota’s president, Akio Toyoda, said the firm was not planning to reconsider its investment in Mexico. Speaking just before Trump’s tweet appeared, Toyoda said of the incoming US administration: “I would like to make it an opportunity for us.

“I don’t know yet exactly how, but, regardless of who becomes president, our business is about being good corporate citizens,” he told a gathering of the Japan Automobile Manufacturers Association in Tokyo.

“And by becoming good corporate citizens we are facing the same goal of making America strong. And so we will continue to do our best.”

Toyota is one of several Japanese carmakers that have been tempted by Mexico’s low labour costs and proximity to the North American market. Nissan chose Mexico decades ago as the site for its first assembly plant outside Asia, and last year produced 830,000 cars at its two factories there. Honda has two assembly and engine plants in Mexico that together produce 263,000 vehicles a year.

Nissan’s chief executive, Carlos Ghosn, said he was comfortable with Trump’s “America first” credo. “I’m hearing ‘We in the US have a very large market, and we want our fair share of the benefits both in terms of trade and jobs,”’ Bloomberg quoted Ghosn as saying on Thursday at the CES 2017 trade show in Las Vegas. “I’m not hearing ‘close the border.’”

Other carmakers appear to have been affected by Trump’s attempts to browbeat them into building vehicles in the US.

Ford Motor this week scrapped plans to build a US$1.6 billion plant in San Luis Potos, Mexico, after Trump called on the company to create jobs at home.

Trump has repeatedly threatened to impose a 35 per cent tax on small cars made in Mexico and this week criticised General Motors for importing Chevy Cruze vehicles from Mexico.

Analysts said import taxes would have little effect on Toyota’s business in the region.

“We think the impact on business performance is limited,” said Akira Kishimoto at JP Morgan.

“A cool judgement is needed.” Kishimoto noted that Toyota’s exposure to Mexico was limited, adding that even an “extreme case” tariff of 20 per cent would hit the carmaker’s operating profit by about 6 per cent.