Korean auto industry burdened as U.S. favors Japan

The administration of U.S. President Donald Trump on the 4th signed an executive order imposing 15% reciprocal tariffs on imports from Japan. Japanese cars and auto parts exported to the United States will now be subject to the 15% duty. By contrast, Korean cars and parts, whose tariff negotiations have yet to conclude, continue to face a higher 25% rate. For Korean companies competing head-to-head with Japanese rivals in the U.S. market, the situation is excruciating. Adding to the shock, a joint task force including U.S. Immigration and Customs Enforcement raided the construction site of Hyundai Motor and LG Energy Solution’s joint battery plant in Georgia, arresting about 450 Korean employees and others who were staying on business trips or tourist visas.

Trump signed the order just six weeks after reaching a broad agreement with Japan on July 22, and it could take effect as early as next week. South Korea reached a similar deal with Washington eight days later, agreeing to the same 15% tariff rate. However, since the South Korea-U.S. summit on Aug. 25, follow-up procedures have stalled, leaving Korean exporters uncertain when the 25% tariff, in place since April, will be reduced.

For South Korean carmakers that once enjoyed tariff-free exports under the Korea-U.S. Free Trade Agreement, duties have surged by 25 percentage points. Japanese firms, which had been paying 2.5%, now face only an additional 12.5 points. In a market where even price differences of hundreds of thousands of won can sway consumer choice, the imbalance tilts the competition in Japan’s favor. Each month the higher tariff persists, South Korea’s auto industry shoulders an additional burden of about 500 billion won.

Lowering the tariffs quickly requires resolving disagreements in other areas of negotiation, which has proven difficult. Washington has demanded that Seoul disclose in advance how it will manage and allocate profits from a $350 billion U.S. investment fund before any final agreement. The Korean government seeks to minimize direct investment while expanding loans and guarantees, while the United States insists on immediate cash contributions to a fund it can control at its discretion. Reports say Tokyo promised a $500 billion investment commitment in writing to secure faster tariff relief.

The tariff war has already hit exports. South Korea’s shipments of cars to the United States fell 12% last month from a year earlier. While companies are defending market share by cutting margins, they cannot endure indefinitely. The immigration raid at the Georgia battery plant is likely to further chill the activities of Korean businesses operating locally. Seoul’s diplomatic and trade authorities must now mount an all-out effort in follow-up negotiations to resolve these pressing issues.