Milestone 1: Toyota | Economics Blog

Milestone 1

Toyota Motor Corporation (Toyota) is a globally recognized brand in Toyota City, Aichi, Japan. The Japanese company is one of the largest multinational automotive manufacturers in the world, "Producing an average of 7.5 million vehicles in 2021" (Toyota Motor Corporation, 2022, p. 11). The Toyota Motor Company was established on August 28, 1937, by founder Kiichiro Toyoda. Over the decades, the company has produced a wide range of cars, trucks, vans, and sports utility vehicles. Toyota has a well-established brand globally. The company's many years in the industry and its dominance in the automotive industry allow them to have a comparative advantage over its rivals. Toyota invests in innovation and research, and development. Toyota made strategic moves in the United States when it entered the automotive market. They implemented various market entries during the 1980s, 1990s, and 2000s, expanding their lineup in the United States. "The third step was the release of the Prius hybrid vehicle in 2000, which greatly boosted Toyota's environmentally conscious imagine. . . As of 2007, the all-time total of U.S. hybrid vehicle sales exceeded 700,000 vehicles" (2022, para. 4). The company has expanded its operations to cover multiple North American markets, including West Virginia, Alabama, Tennessee, Kentucky, Mississippi, Texas, Michigan, and Canada. However, due to the current global issues caused by the pandemic and now the Russia-Ukraine war, Toyota, like many other companies, is facing the same difficulties in supply chain demand.

The supply and demand chain is an essential aspect of any company but also crucial in the trade market. According to Cowen and Tabarrok, "The most important tools in economics are supply, demand, and the idea of equilibrium" (2020, pp.29). Toyota, before the Covid-19 pandemic, was performing well. The supply and demand of their cars were thriving. However, the global pandemic and the Russia-Ukraine war have created a massive disruption in all production levels. Reuters, in the article, Toyota cuts '22 new-car sales industry outlook on supply-chain issues, states the following, "The global auto industry had already been hit by the COVID-19 pandemic and subsequent shortage of semiconductor chips even before Russia's invasion of Ukraine snarled parts of the supply chain and contributed to soaring prices of raw materials such as aluminum and nickel." Because of these shortages, Toyota announced in April the reduction of the new-car production from $16.5 million to $15.5 million in the United States markets. Both Japan and the United States have been impacted by supply chain issues, the war in Ukraine, and inflation.

Gross Domestic Product (GDP) is important because it "measures an economy's total output, which includes millions of different goods and services." (Cowen & Tabarrok, 2020, pp. 519). The GDP of Japan as of 2021 is $4.94 trillion (in USD), according to the data from the World Bank. Whereas the United States is $23 trillion. Toyota is a Japanese-owned enterprise that conducts business in the United States and benefits from the regional and economic integration union. The U.S. Department of State explains the following, "The US-Japan Trade agreement eliminates or reduces tariffs on approximately $7.2 billion in U.S. agricultural exports. . .The United States' goods trade deficit with Japan remains the third largest in the world. Approximately 75 percent of the deficit is from autos and auto parts." (2022, para. 6). The United States and Japan have maintained good relations concerning trade and reduced trade barriers. The fluctuation of GDP, economic growth, investments, and patents affect the profitability of Toyota in many ways. As we are currently seeing in the global markets, there are negative impacts when GDP declines and economic growth slows down because investment also declines. Bloomberg's Yoshiaki Nohara explains what declining GDP in Japan means to investors, "The setback of Japan's already sluggish recovery from the pandemic stemmed from the deterioration in overall trade as import prices surged, exacerbated by the war in Ukraine and a plunge in the yen to two-decade lows. . .Businesses will be cautious about investing in an uncertain environment without a clear driver of growth." (2022). Toyota has invested millions into the production of vehicles in the United States. Still, supply chain delays and price increase on commodities creates a loss for the company. Patents are equally crucial because they allow the company access to innovative new products.

Reference

Bloomberg. (2022). Japan's Sputtering Recovery Offers Support for BOJ Stimulus Case.

Retrieve from: https://www.bloomberg.com/news/articles/2022-05-18/japan-s-economy-shrinks-on-

trade-drag-omicron-consumption-hit

Cowen, T., & Tabarrok, A. (2020). Modern Principles of Economics (5th Edition). Macmillan

Higher Education. https://mbsdirect.vitalsource.com/books/9781319329464

Reuters. (2022). Toyota cuts '22 new-car sales industry outlook on supply-chain issue. Retrieved

from https://www.reuters.com/business/autos-transportation/toyota-cuts-22-us-new-car-

sales-industry-outlook-supply-chain-issues-2022-04-06/

The World Bank. (2022). Retrieved from

https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=JP

Toyota Automotive Company. (2022). Retrieved from