World Economy

Japan May Take Major Hit if US Leaves NAFTA

Japan’s Honda factory in Celaya, Mexico.
Japan’s Honda factory in Celaya, Mexico.

Japanese business leaders are warning that US President Donald Trump’s protectionist trade policies threaten to undermine a global economy shored up by free trade and investment.

“A protectionist approach such as quitting the Trans-Pacific Partnership and renegotiating the North American Free Trade Agreement will have a significant negative impact on the world economy,” Akio Mimura, chairman of the Japan Chamber of Commerce and Industry, said in a statement Sunday, Jiji Press reported.

On his first day in office on Jan. 20, Trump said Washington will withdraw from the 12-nation TPP free trade deal and renegotiate the NAFTA, or pull out of the pact if Canada and Mexico refuse.

The value of exports from Mexico to the United States jumped six-fold from about $50 billion (5.75 trillion yen) in 1994, when the NAFTA took effect, to $300 billion in 2015.

About 1,000 Japanese companies are operating in Mexico today, where tariffs have been lifted with the United States and Canada under the NAFTA. The number of Japanese businesses in Mexico is higher than any other country in Latin America.

The fallout from a spike in tariffs in the event of a US withdrawal could have far-reaching ramifications on the Japanese economy, experts say.

Most Japanese companies in Mexico are in the auto industry, including Nissan Motor Co., which rolls out the highest number of vehicles there among Japanese carmakers, Toyota Motor Corp. and Honda Motor Co.

Many major companies utilize their factories in Mexico as their exporting hub to the United States and Canada.

If the new president pushes protectionist policies toward more US trade partners, experts worry that it could bring world trade to a standstill.

Before taking office, Trump expressed his intention to cut US trade deficits at a news conference on Jan. 11, referring to trade with China, Japan and Mexico.

“We have hundreds of billions of dollars of losses on a yearly basis, hundreds of billions with China on trade and trade imbalance, with Japan, with Mexico, with just about everybody,” he said. “We don’t make good deals anymore.”

Sadayuki Sakakibara, chairman of Keidanren (Japan Business Federation), called for Japan and the United States to work together toward prosperity and the world economy.

“The global economy is faced with an array of challenges, including maintaining the free-trade and investment system,” he said in a statement on Jan. 21. “It is essential that Japan and the United States cooperate more closely and further contribute to a more prosperous world.”

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