US Tariffs on Imported Cars to Weigh Heavily on S. Korean Carmakers

SEOUL:
US President Donald Trump’s recent announcement to levy 25 per cent tariffs on all imported vehicles next month is expected to deal a heavy blow to South Korean carmakers, which largely depend on shipments to the United States, analysts said on Thursday.

Trump signed a proclamation to impose the new tariffs on foreign-made cars, light trucks and key auto parts, set to take effect from next Wednesday.

South Korea exported US$34.7 billion worth of vehicles to the U.S. last year, accounting for nearly half of the country’s total car exports in the year at $70.8 billion, reports Yonhap news agency.

Under the Korea-U.S. Free Trade Agreement (KORUS), Korean-made cars have been exempt from tariffs in the U.S.

Experts noted that the 25 percent tariffs will increase the price of Korean cars sold in the U.S., ultimately impacting South Korea’s economy.

A report published by the IBK Economic Research Institute estimated that South Korea’s car exports to the U.S. will decrease by 18.59 percent once Washington imposes 25 percent tariffs on car imports.

Citi Research forecast a 0.203 percent decrease in South Korea’s gross domestic product (GDP) following Washington’s imposition of 25 percent tariffs on cars, auto parts, medicines and semiconductors.

Hyundai Motor Group, South Korea’s largest automaker that recently announced a plan to invest $21 billion in the U.S. over the next three years, is also expected to face a short-term impact.

Hyundai Motor Co. and Kia Corp. sold a combined 1.7 million vehicles in the U.S. last year, including 1 million Korean-made cars.

The group’s latest investment plan aims to expand U.S. production to mitigate the impact of tariffs. The company has three production facilities in the U.S., including the newest Hyundai Motor Group Metaplant America (HMGMA) in Georgia, which officially opened Wednesday (local time).

However, insiders note the expansion plan needs time to be realised.

Although HMGMA has a capacity of 300,000 vehicles, it shipped only 4,000 units last month, highlighting the time required to ramp up production.

The new U.S. tariffs are also raising concerns about a potential withdrawal of GM Korea Co., the South Korean unit of General Motors Co. It shut down one of its Korean factories in 2019, citing low profit.

GM Korea exported 410,000 vehicles to the U.S. last year, accounting for 85 percent of its total overseas sales.

Industry officials and experts emphasised the need for the South Korean government to act swiftly to secure exemptions or waivers by highlighting Korean companies’ U.S. investments and contributions.

“It is the thing that we have been worrying about and preparing for,” said an official at an automaker. “It is not something individual companies can address alone. We are watching the situation closely and waiting for the government to take action.”

During the HMGMA opening ceremony, Hyundai Motor Group Executive Chair Euisun Chung also called for concerted efforts by the South Korean government and carmakers to seek favorable deals in upcoming tariff negotiations with Washington.

“I know our investment plan can hardly affect Washington’s tariff policies,” he said. “We are just a company. It’s a country-to-country issue.