The Impact of Tariffs and Protectionism on Toyota’s Operations

In their worldwide operations, multinational organizations often encounter a number of challenges which may include the imposition of tariffs and other forms of protectionism. Intended to deter the importation of a certain commodity, a tariff is the tax that one sovereign state imposes on the products from another sovereign state. These tariffs go towards increasing the prices of the commodities on which they are slapped and thus making such unattractive to customers. On the other hand, protectionism (which also encompasses tariffs) refers to the deliberate policies employed to restrain trade between two nations through quotas and other regulations. In this essay, the case of the giant car maker the Toyota Company is detailed and how its operations have been affected by tariffs and other forms of protectionism.

Tariffs & Other Measures of Protectionism against Toyota

            Operations of Toyota on the global scene have often been marked by challenges especially from the big automobile market of the US. Japan headquartered Toyota Company has been grappling with a number of tariffs and protectionist measures aimed at preventing the export of vehicles (manufactured elsewhere) into the US. In the latest of such measures, which occurred in early 2017,US president Donald Trump took a swipe at the company for planning to build a plant in Mexico and swore to levy heavy tariffs, as much as 35% (Maynard, 2017), on such cars while also demanding that the automaker build a new automobile manufacturing plant in the US. In the end, the company had to, as Nikkei Asian Review (2017) notes, the company had to announce plans of building a US $ 10 billion plant that will create hundreds of jobs for US citizens.

            Toyota has faced a number of other protectionist measures in the US including the unfair targeting during the infamous recall of models in 2010. The US government through its regulatory bodies unfairly cracked down on Toyota, in what Junsheng (2010) dismissed as “not necessarily protectionism.” Junsheng (2010) further alleges that the US adopted protectionism as a means of protecting itself after the financial crisis of 2008-09 which affected it more than it did any other economy.Erixon & Sally (2010) also notes that the Toyota Company has not only faced protectionism measures from the US alone, pointing out that other entities in the EU.

Effects of Tariffs & Protectionism on Toyota’s Operations

            As a result of the protectionism measures, Toyota has seen a reduction in its overall sales volume due to the reduced competitiveness of its products owing to the fact that they are not manufactured cost-competitively. Further, the firm has had to reduce the capacity in its existing firms in order to comply with the restrictions of exporting cars thus leading to wastages. In response to the tariffs and protectionist policies, the Toyota Company has had to set up shop in the concerned jurisdictions, plants that would have proven unnecessary had the protectionist policies not been effected. Additionally, the protectionist policies have also contributed to an increase in the pricing of the Toyota cars.Toyota’s rationale for wanting to make cars outside of the US and the EU is driven by the fact that the US as a developed high income economy has very high standards of living as does many countries in the European Union, a fact that increases the overall costs of labor incurred by the firm during production.

Domestically, the tariffs made the operations of the firm more difficult as it had to set up plants and start the manufacture of parts and pieces rather than just assembling them there (due to stringent protectionist policies) thus increasing the costs of operation for Toyota. Further, the protectionist policies cut the market share of Toyota by making its products more, rather than less, expensive than they were in order to allow the American car makers to compete favorably against it.

Impact of Protectionism on Toyota’s Growth

            Imposition of protectionist policies on Toyota have greatly impacted the company’s growth. For one, the firm has had to give up the low cost advantage it enjoyed as a result of manufacturing cheaply outside the US and the EU there-before.  As a result, the company has had to grapple with increased competition from other automobile manufacturers. Similarly, the fear of protectionist measures have therefore made the world’s second largest car maker to set up plants and open up otherwise expensive and unnecessary factories in the concerned jurisdictions in order to ”deflect any protectionist sentiments” and comply with the stringent measures that the concerned governments have often imposed against it. This has made the firm’s production less competitive due to their high prices. Additionally, the car maker has had to deal with reduced capacities in its existing plants in other jurisdictions (where the costs of labor are low) due to the shift of production efforts to new plants established in compliance with protectionist policies. This has led to losses of productive capacity and incurring of unnecessary costs that would have otherwise been channeled into production efforts.

Conclusion

            Protectionist policies are intended to discourage trade, specifically the importation of certain targeted products. In this case, the various protectionist measures adopted by nations particularly the US and the EU against the Toyota Company have seen the firm suffer loss of productive capacity, witness a reduction of its competitiveness due to higher costs of production and forced it to set up plants that would have otherwise been unnecessary further leading to an erosion of its competitiveness.

References

Asia Nikkei (2017). Toyota finds some success in pleasing Protectionist Trump. AsiaNikkei.Com, April 11, 2017. [Online]Accessed January 19, 2018 from https://asia.nikkei.com/Business/Companies/Toyota-finds-some-success-in-pleasing-protectionist-Trump

Erixon, F., & Sally, R. (2010). Trade, Globalisation and Emerging Protectionism since the Crisis. ECIPE, Brussels.

Junsheng, Z. (2010). U.S. Tough Treatment of Toyota Is Not Necessarily Protectionism. Watching America, March 1, 2010. [Online] Accessed January 19, 2018 from http://watchingamerica.com/WA/2010/03/01/u-s-tough-treatment-of-toyota-is-not-necessarily-protectionism/

Maynard, M. (2017). Trump’s Indirect Protectionism moves on to Toyota after GM and Ford. Forbes, January 5, 2017. [Online]Accessed January 19, 2018 from https://www.forbes.com/sites/michelinemaynard/2017/01/05/trumps-indirect-protectionism-moves-on-to-toyota-after-gm-and-ford