Will Potential U.S. Tariffs on Japan and Mexico Hurt Nippon Steel?

Japan is among the top 10 steel exporters to the United States which in March began imposing a 25% tariff on steel imports, aimed at curbing purchases from China. These tariffs already had an adverse impact on Japanese steel manufacturers and if this was not enough, U.S. has also started looking at the imposition of tariffs on car and automotive imports coming from Japan.

Apart from Japan, U.S. President Donald Trump has said last week that he would target all goods coming from Mexico with a 5% tariff from June 10, increasing to 25%, unless Mexico took immediate action.

Amid these trade restrictions, while majority of steel manufacturers are worried that their business will be badly impacted, Japan’s largest steel manufacturer, Nippon Steel Corp have said that Washington’s move to impose tariffs on Japanese cars and auto parts will hurt its earnings, but expects a less direct impact from the U.S.’s proposed tariffs on imports coming from Mexico.

This is because, Nippon Steel exports steel to Mexico that is processed in the company’s local joint venture and sold to automakers in the country and although those automakers will be hurt by tariffs, the initial 5% tariff at least may not have a major impact because of the healthy U.S. economy and cost competitiveness of automobiles made in Mexico.

However, if U.S. tariffs on cars and automotive become a reality, it will impact Nippon Steel’s business as the sector accounts for about 40% of its annual production, including high margin specialty products. Japan exports not only cars to the United States but also a significant volume of car parts, including key safety components using special steel.

What impact does last year’s tariffs had on Nippon Steel?

Nippon Steel’s Executive Vice President recently said in an interview that given the solid local demand, there has been no major impact of U.S. tariffs on company’s overseas sales.

The company’s U.S.-bound steel cargoes account for 4% of its total exports, saw more than 90% of its customers continuing to buy its products even after the tariffs were imposed because they are specialised products such as rails and seamless pipes. Along with this, its U.S. subsidiaries which have a combined production capacity of 7.1 MnT are being benefited from stronger local prices in U.S.