True value of Korea-U.S. FTA emerges after years

Some things are only truly valued after they disappear. The Korea-U.S. Free Trade Agreement, which took effect in 2012, appears to be one of those. The negotiations faced intense opposition. Street protests likened the deal to the Eulsa Treaty, which led to Japan’s forced annexation of Korea. Tear gas was deployed during the parliamentary vote, turning the chamber into chaos. Warnings about the collapse of key industries were frequent.

However, despite fierce social resistance and concern, the FTA has proven its value over more than a decade as a pillar of South Korea’s exports to the United States. Korean exports to the U.S. grew from $58.6 billion in 2012 to $127.8 billion in 2024. The trade surplus jumped to $55.7 billion. The U.S. became South Korea’s largest surplus partner. Major companies such as Hyundai Motor have used the FTA to build their presence in the American market. Online, some have re-evaluated the FTA, calling it a hero for the Korean economy.

The FTA has effectively lost its power after 13 years with the recent tariff agreement, delivering a significant blow to the auto sector. Thanks to the FTA, Korean cars previously enjoyed zero tariffs while Japanese and European models paid 2.5 percent, securing strong price competitiveness. Now, equal 15 percent tariffs apply, making it difficult to maintain the previous cost-efficiency strategy.

Moreover, the sudden exit from the FTA framework left little time for preparation. According to investment experts, Hyundai’s local production ratio in the U.S. was only 43 percent last year. By contrast, Japan’s Toyota expanded U.S. production early in the 1980s and 1990s, reaching 52.3 percent. Honda’s local production stood at 80.3 percent, and Nissan’s at 63.6 percent. Because of tariff-free access, Korea’s localization strategy lagged behind. With the same 15 percent tariff applied, Korea faces a bigger blow due to lower local production.

Ultimately, the solution is clear. Korea must build competitiveness to replace lost tariff advantages. Expanding local production, upgrading supply chains, and strengthening research and development are not choices but necessities for survival. Hyundai recently partnered with General Motors, one of the U.S. Big Three, to jointly develop new vehicles, a disruptive innovation that would have been unimaginable before and must continue.

Fortunately, Korea has experience turning crises into opportunities. In 1999, Hyundai drew attention in the U.S. market by offering a 10-year, 100,000-mile warranty while competitors offered two years or 24,000 miles. During the 2008 global financial crisis, when U.S. auto demand plunged, Hyundai expanded its market share by introducing a program allowing customers who lost their jobs within a year to return their cars.

The era of tariff advantages is over, and the true competition begins. Standing alone without protection, Korean automakers must prove their unique strengths. In 10 years, this moment may be remembered as the turning point for Korea’s auto industry.