Seoul: U.S. President Donald Trump's decision to impose a 25 percent tariff on all imported vehicles is anticipated to significantly impact South Korean carmakers, who are heavily reliant on exports to the United States, analysts indicated on Thursday. The tariffs are set to come into effect next Wednesday, as per Trump's proclamation targeting foreign-made cars, light trucks, and key auto parts.
According to Yonhap News Agency, South Korea exported $34.7 billion worth of vehicles to the U.S. last year, comprising nearly half of the country's total car exports of $70.8 billion. Under the Korea-U.S. Free Trade Agreement (KORUS), Korean-made cars have previously been exempt from U.S. tariffs. Experts suggest that the new tariffs will raise the cost of Korean cars in the U.S., with potential repercussions for South Korea's economy.
A report from the IBK Economic Research Institute projects that South Korea's car exports to the U.S. will drop by 18.59 percent due to the impending tariffs. Additionally, Citi Research predicts a 0.203 percent decrease in South Korea's GDP as a result of tariffs affecting cars, auto parts, medicines, and semiconductors.
Hyundai Motor Group, South Korea's largest automaker, which recently pledged a $21 billion investment in the U.S. over the next three years, is expected to experience a short-term impact. Last year, Hyundai Motor Co. and Kia Corp. sold a combined total of 1.7 million vehicles in the U.S., including 1 million vehicles manufactured in Korea. The group's investment aims to boost U.S. production to counteract tariff effects, supported by facilities like the newly inaugurated Hyundai Motor Group Metaplant America (HMGMA) in Georgia.
However, industry insiders caution that the expansion plan will require time to implement fully. Although HMGMA has a production capacity of 300,000 vehicles, only 4,000 units were shipped last month, underscoring the gradual nature of production increases.
The tariffs are also causing concern regarding a possible withdrawal of GM Korea Co., a subsidiary of General Motors Co., which closed one of its Korean factories in 2019 due to low profitability. GM Korea exported 410,000 vehicles to the U.S. last year, representing 85 percent of its total overseas sales.
Industry officials and experts stress the urgency for the South Korean government to pursue exemptions or waivers by emphasizing Korean companies' investments and contributions in the U.S. "It is the thing that we have been worrying about and preparing for," an official at an automaker remarked. "It is not something individual companies can address alone. We are watching the situation closely and waiting for the government to take action."
Hyundai Motor Group Executive Chair Euisun Chung, during the HMGMA opening ceremony, urged for collaborative efforts by the South Korean government and carmakers to secure favorable outcomes in upcoming tariff negotiations with Washington. "I know our investment plan can hardly affect Washington's tariff policies," he stated. "We are just a company. It's a country-to-country issue."