Hopes for a tariff breakthrough for other major exporters surged on Wednesday, leading to a jump in shares of Europe’s top carmakers.
This optimism followed the blockbuster trade agreement reached between the US and Japan.
On Truth Social, US President Donald Trump hailed the “massive” trade agreement as “perhaps the largest Deal ever made.”
US tariffs on imported Japanese vehicles and parts are anticipated to decrease to 15%, a substantial reduction from the current 25% rate applied globally, following the expected deal.
Japanese Prime Minister Ishiba provided further details regarding the agreement.
He verified that Japan would be subject to a 15% tariff, which includes automobiles, and would not be adversely affected by any tariffs on chips, according to an ING Group report.
Nevertheless, the 50% tariff on steel and aluminum will persist for the time being.
Japan’s Ishiba denied that the agreement included lowering import tariffs. The US will receive $550 billion in investments, backed by loans from government-related organisations.
Shares rise
On Wednesday morning, the Stoxx Europe autos index climbed 4.2%, positioning it for its most substantial daily increase since mid-February, CNBC quoted LSEG data in a report.
Earlier in the day, shares of German automakers Volkswagen, BMW, and Mercedes-Benz Group all rose by more than 5%, according to the CNBC report.
Luxury automaker Porsche saw an even more significant increase, soaring by 7.5%.
Shares of Jeep maker Stellantis, listed in Milan, were up by around 7.1%.
Japanese auto stocks experienced a significant upswing, leading to substantial gains, according to the report. Toyota saw an increase of over 14%, while its domestic counterparts, Honda and Nissan, rose by 11% and 8% respectively.
Beneficial for Japan
On his Truth Social platform, an announcement was made by Trump regarding Japan’s willingness to open up various markets, including those for cars, trucks, rice, and other agricultural products.
Subsequently, during a White House event, Trump also mentioned a forthcoming joint venture with Japan for an LNG project in Alaska, designed to primarily benefit the US.
Tariffs pose a significant threat to the automotive sector. This vulnerability stems from the highly globalised nature of automotive supply chains and the sector’s heavy reliance on manufacturing operations throughout North America.
Auto exports from Japan to the US are crucial for the world’s fourth-largest economy. In 2024, these exports constituted 28.3% of Japan’s total shipments, according to customs data.
HSBC economists termed the reduction in US auto tariffs as a “massive boon” for Japan, according to the CNBC report. They observed that Japan seems to have secured more favorable terms than other Asian nations.
Difficult to predict
Katsuhiko Aiba, a Citi economist, suggested that the agreement between Washington and Tokyo to mutually reduce auto tariffs to 15% might impact discussions with other significant auto-exporting nations.
Aiba said in a research note:
It is notable that auto tariffs were reduced without any cap on auto exports for a major auto exporting country, which may have implications for negotiations with the EU and South Korea.
For an extended period, the European Union has been actively working towards an agreement with the US aimed at reducing auto tariffs.
Trump recently threatened to increase levies on EU imports to the US to 30% starting August 1st if no agreement is reached by then, aiming to intensify pressure on the 27-nation bloc.
Morningstar equity analyst Rella Suskin noted that it is “impossible to predict” if a European auto deal will emerge following Japan’s new trade terms with the US, though “that is certainly what the markets are reflecting.”
Suskin highlighted a critical point: Japan’s commitment to invest over half a trillion dollars in the US.
In 2024, the US comprised 22% of the EU’s export market, as per data from the European Automobile Manufacturers’ Association (ACEA), an industry lobby group.
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