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US Automotive Imports from Japan The U.S.-Japan Automotive Bilateral 1994 Trade Deficit May 1991 for The Automotive Parts Advisory Committee by The Office for the Study of Automotive Transportation The University of Michigan Transportation Research Institute Report Number: UMTRI 91-20 The overall objectives of the Office for the Study of Automotive Transportation (OSAT)are to provide information resources, industry analysis, communication forums, and academic research that meet the continually changing needs of the international automotive and automotive-related industries. The U.S.-Japan Automotive Bilateral 1994 Trade Deficit May 1991 by Sean P. McAlinden David J. Andrea Michael S. Flynn Brett C. Smith The Office for the Study of Automotive Transportation The Transportation Research Institute The University of Michigan Ann Arbor, Michigan OSAT wishes to express its appreciation to the Automotive Parts Advisory Committee, under whose auspices this study was conducted, for providing financial support for this effort. The analysis and interpretations expressed here are solely the authors', and do not necessarily reflect the views of the Automotive Parts Advisory Committee, its members, or employees. Tuhnicol Report Doculmtutim Pogr ' 1. R-rt No. 2. Gorrmnmt Accr~t~onNo. 3. Rrs~p~mt'mCrtolog No. UMTRI 91-20 4. Title avd Subtitle 5. Roport Dote The U.S.-Japan Automotive Bilateral May 1991 1994 Trade Deficit 6. Pnforninq O~gonirotionCadr , I. P~rlorringOrgonirat~on Repor! No. McAl inden, Sean P. ; Andrea, David J. ; Flynn, Michael S.; Smith, Brett C. 9. Pefloming Orvmiaotion None ndAddrr~s 10. WorC Un~tNo. (TRAIS) Office for the Study of Automotive Transportatioi U-M Transportation Research Institute 11. Conlvoct or GIO~I NO. 2901 Baxter Rd., Ann Arbor, MI 48109-2150 13. TYP* 01 Report and Pariod Corvrrd 11. hsrrin( Awcy Nnr md Addtest The Automotive Parts Advisory Committee and Tenneco Corp. 14. Spontofing Agency cod* 15, Supplrmmtrv Net*, 16. Abrtrrct This report exanlines the bilateral automotive trade deficit with Japan which still accounts for a larger share of the overall U,S, trade deficit than any other bilateral, product-specific category of trade. In 1990, the U,S.-Japan automotive trade deficit was $31,1 billion, or 28% of the U.S, total trade deficit and 76% of the overall 1990 U,S. trade deficit with Japan, This analysis indicates that the size of this deficit will not be reduced in coming years, but will change importantly in composition, An understanding of the development of this specific trade deficit is critical in the formation of policies meant to improve overall U,S, trade performance. This report's estimate of the level of the U,S.-Japan bi- lateral automotive trade deficit is a combination of separate forecasts of the vehicles and parts deficits. However, developments in U.S.-Japan vehicle trade largely determine patterns in the parts trade imbalance, A major result of this study is the estimate of the growing importance of the parts deficit in the overall bilateral deficit. Implications are that almost half of the bilateral deficit will be directly determined by Japanese sourcing. This report's analysis and projections suggest a con- tinuing serious problem in the bilateral automotive trade deficit with Japan. 17. Key Wrrdr I@, Dichikrtion Stotrmmt parts deficit, bilateral automotive Please check with OSAT. Available trade deficit, Japan, trade im- as a purchase. balance 1). kcurity Clrrrif. (of 61s r-t) 20. kwrlr). Clrrril, (of fhic pqo) 21, No. of Poges 12. Pr~cr 120 $lOO.OO Acknowledgements This report is the product of a team effort at the Office for the Study of Automotive Transportation (OSAT). The vehicle trade section was written by Michael Flynn, and the parts trade portion of the study, by Sean McAlinden. David Andrea carried out the analysis and the writing of the transplant sourcing case study. Brett Smith contributed to all three sections. We gratefully acknowledge the complete support and special leadership of David Cole, Director of OSAT. Others also contributed. We would especially like to thank Mary J. Murphy and Michael Hagey of the U.S. International Trade Commission for their timely and critical assistance. George Fulton of the University of Michigan also provided critical technical expertise and review on the statistical portion of the parts study. Lee Kadrich of the APAA provided valuable support and assistance at various times during the study. Daniel Luria of the Industrial Technology Institute and John Du Ponte of the Foreign Trade Zone Board made valuable contributions. We would like to express our appreciation, as well, to the staff of OSAT, and to Tom Oakley and Jack Reilly for the opportunity and for their support. Executive Summary The specific bilateral deficit we examine in this report-the bilateral automotive trade deficit with Japan-still accounts for a larger share of the overall U.S. trade deficit than any other bilateral, product-specific category of trade. In 1990, the U.S.-Japan automotive trade deficit was $31.1 billion, or 28% of the U.S. total trade deficit and 76% of the overall 1990 U.S. trade deficit with Japan. Our analysis indicates that the size of this deficit will not be reduced in coming years, but will change importantly in composition. An understanding of the development of this specific trade deficit is critical in the formation of policies meant to improve overall U.S. trade performance. Our estimate of the level of the U.S.-Japan bilateral automotive trade deficit is a combination of separate forecasts of the vehicles and parts deficits. However, developments in U.S.-Japan vehicle trade largely determine patterns in the parts trade imbalance. The 1990 vehicle deficit--or the trade imbalance between the United States and Japan in assembled cars, trucks and vans-is virtually the same, measured in constant dollars, in 1990 as it had been in 1985. However, the constant dollar automotive parts deficit grew during 1985-1990 at an annual average rate of almost 17%. In 1990, the U.S.-Japan automotive parts deficit, a total of $10.5 billion, accounted for 99% of the total U.S. trade deficit in automotive parts. In other words, except for Japan, 1990 U.S. trade in automotive parts with the rest of world was virtually in balance. We use a "scenario-modelling method," to forecast the 1994 bilateral vehicles trade deficit with Japan. We first develop scenarios of the 1994 U.S. market, our best judgements of developments in the U.S. automotive market by 1994. That, in turn, requires forecasting the sales goals and achievements of the vehicle manufacturers, both Japanese and Big Three. We then link these projected sales patterns to the manufacturer's domestic-and foreign-vehicle sourcing patterns, We tie these automotive scenarios to the vehicle categories underlying the official statistics on the U.S. vehicle deficit. Our "Most Likely" vehicle trade scenario estimates 1994 Japanese vehicle imports of 2.3 million, and U.S.-sourced vehicle exports to Japan of 89,000. In constant dollars, the vehicle import bill increases .05%, to $21.3 billion, while the current dollar increase is just over 20%, reaching $25.6 billion. Vehicle exports pass $1.5 billion constant dollars, up over 260%, and $1.8 billion current dollars, an increase of over 300%. Subtracting vehicle exports from imports leaves a U.S. deficit of just under $19.8 billion constant dollars, down some 4% from 1990, or about $23.7 billion current dollars, some 15% higher than in 1990. We use a statistical forecast method to estimate the 1994 bilateral automotive parts trade deficit with Japan. The model is based on an analysis of the effects of Japanese transplant production, aftermarket demand, and demand from traditional U.S. vehicle producers for imported Japanese auto parts during 1985-1990. For example, about $3,200 of imported of auto parts from Japan are related to unit assembly of Japanese vehicles in the United States during 1985-1990. Our 1994 forecast of parts imports from Japan is partially based, then, on a 1994 forecast of Japanese transplant vehicle production of 2.5 million. Our "Most Likely" parts trade scenario estimates that Japanese parts imports into the United States will reach $21.5 billion constant dollars in 1994, up over 89%, while the current dollar increase is just over 126%, reaching $25.7 billion. We simply trend U.S. parts exports to Japan on the basis of annual average growth demonstrated by such shipments in 1985- 1990. Thus, we forecast constant dollar parts exports to Japan of $3.1 billion in 1994, a 247% increase, while the current dollar increase is 320%, reaching $3.8 billion. Subtracting parts exports from imports leaves a U.S. deficit of $18.3 billion constant dollars, up almost 75% from 1990, or about $22.0 billion current dollars, some 110% higher than in 1990. We also perform a detailed analysis of the sourcing practices of a "leading" Japanese transplant assembler in 1989. The selected case study is found to be the leading Japanese transplant producer in terms of U.S. domestic sourcing of parts and component purchases. The purpose of the exercise is to check our statistical results on likely patterns in transplant sourcing in recent years, and the future behavior of other, lower volume and more recent transplant producers in future years. Our analysis is based on both public and internal, OSAT sources of information. Our results indicate that, in 1989, approximately 38% of customs the value of the transplant's U.S. vehicle production was sourced from Japan, 46% from transplant facilities in the United States, including the transplant's own, and 16% from U.S. traditional automotive suppliers and third country imports. We estimate that this producer achieved an average customs value based domestic content level of 62% in 1989.
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