A new U.S.-Japan trade deal reportedly gives the Asian country a 15 per cent flat tariff rate — providing a potential edge in key export areas such as auto manufacturing, where Canadian finished vehicles currently face a 25 per cent tariff rate. United States President Donald Trump announced the deal with Japan on Tuesday but details remain vague, as no official text of the deal was released. That is similar to other trade deals that the U.S. has announced in recent weeks, where the details remain undisclosed. Still, as Canada inches toward an August deadline on negotiations with the U.S., auto industry professionals offered mixed reactions as to how Japan’s deal could affect the competitiveness of Canada’s sector. “If you’re Japan, and you’re looking around and saying where are my competitors, you’re feeling pretty good,” said Eric Miller, president of Washington, D.C.-based Rideau Potomac Strategy Group, a consulting firm on trade policy. “Autos are about a quarter of their exports, and the auto access was a significant piece of this.” Indeed, according to the World Bank , auto and related exports accounted for about 20 per cent of Japan’s trade in 2022. Within Canada’s auto sector, the agreement spurred mixed reactions. On the one hand, if Japanese-built vehicle exports to the U.S. face a lower duty than Canadian built ones, this could in theory incentivize some automakers to move production to Japan. On the other hand, that is considered unlikely by many within the auto industry who hold out hope that in the end, Canadian-built autos are likely to receive a lower tariff rate than Japan. “That’s certainly the hope,” said David Adams, president of the Global Automakers of Canada, a lobbying group that represents Honda Motor Co. Ltd. and Toyota Motor Corp. among other foreign automakers. He and others say that vehicles built in Canada, often in border towns such as Windsor, have far more spillover effects in terms of creating jobs in the U.S. than vehicles built in other countries that are separated from the U.S. by an ocean. In reality, Canadian automakers are already paying below 15 per cent in many cases. That is because the Trump Administration adjusted its policies such that automakers can declare the value of any Canada-United States-Mexico Agreement (CUSMA) compliant parts contained within a vehicle and deduct that amount from the total value of the vehicle subject to a tariff. Many of the vehicles built in Canada contain about 50 per cent CUSMA-compliant parts on average and so the effect of the policy is that most vehicles face a 12.5 per cent tariff rate, according to estimates provided by several auto sector professionals. Still, Adams and others said even a 12.5 per cent tariff rate is too high. “I think all the automakers are saying no tariff is really acceptable,” he said, “That should be the objective of any negotiations because there’s been a lot of money spent to meet the terms of CUSMA.” But Prime Minister Mark Carney has tempered expectations, saying there is likely to be some base level of tariffs on Canadian goods. He has also pushed back his self-imposed deadline for a deal back from July to August, and more recently, suggested that it could take longer because Canada won’t settle for any deal. “His whole premise to be Prime Minister was ‘I can get a better deal than anyone else,’” said Miller. “So he has to be seen to be playing tough.” Miller suggested that a 10 per cent duty rate on Canadian vehicles — which is what the United Kingdom received — could be acceptable, if the U.S. continues to allow automakers to reduce it further through the parts exemptions policy. But there are also some voices in policy circles that argue that Carney and all other countries should simply stop negotiating with the U.S.: If everyone agreed to walk away, then the U.S. would be isolated. With tariffs on all its trade, its manufacturers face higher costs on all inputs that are not made in the U.S. Under that scenario, manufacturers in Canada and other countries would still face tariffs on their exports to the U.S., but their costs would be lower than manufacturers inside the U.S., which would make their products competitive there. Here's a plan to fix Canada's auto sectorTrump set to give auto industry some tariff relief Miller compared it to the “prisoner’s dilemma” in game theory, which is the name for the challenge an individual faces between co-operating with others and acting in self-interest. “That’s the problem of co-ordination,” he said. “We’re all trying to figure out when are others going to go and what does this look like? The bottom line is that the Japanese have come out of this with what looks like a good deal.” • Email: gfriedman@postmedia.com