Tariff gap with Japan further threatens Korea’s US car sales

Cars for export are parked at Pyeongtaek Port in Gyeonggi Province, Tuesday. Yonhap

Korean carmakers are now exposed to higher risks of losing price competitiveness in the United States as their Japanese counterparts begin gaining an edge with a reduced tariff rate of 15 percent there.

Starting Tuesday, Japanese vehicles exported to the U.S. face the lowered tariff instead of the earlier rate of 27.5 percent, following the completion of their bilateral trade agreement.

This is casting a gloomy outlook for Korea’s major carmakers as they are still subject to a 25 percent tariff in the U.S., even after Korea and the U.S. reached a broad deal to reduce it down to 15 percent.

It remains unclear when the reduced tariff rate will take effect, as both countries are still fine-tuning the details of their agreement before it is signed.

Trade Minister Yeo Han-koo, who arrived in Washington on Monday (local time) to meet his counterparts for the trade talks, hinted that Korea will not rush discussions for the sake of reaching a deal, saying the "devil's in the details."

As for Japan's lowered auto tariff, he said, "We are making efforts to ensure the auto tariff will be reduced to 15 percent as soon as possible. As we are in the process of negotiations, we'll stay level-headed."

Hyundai Motor CEO Jose Munoz speaks during the 2025 FISITA World Mobility Conference in Barcelona, Spain, June 3. Courtesy of Hyundai Motor

Against this backdrop, industry officials said Korean carmakers have no choice but to diversify their revenue streams into other global markets, as they are trapped in a quandary in the U.S. due to the tariff uncertainty.

“Local carmakers cannot push ahead with any immediate price hikes on fears of losing their market share there to Japanese rivals,” an official from the industry said.

“They will have to keep increasing their sales in non-U.S. territories to offset the tariff-induced earnings fall in the U.S.”

This shift has been already seen in the nation's vehicle exports tally. Since March, Korea's car shipments to the U.S. have been shrinking year-on-year — decreasing by 10.8 percent in March, 19.6 percent in April, 27.1 percent in May, 16 percent in June, 4.6 percent in July and 15.2 percent in August.

Kia CEO Song Ho-sung speaks during the company's 2025 CEO Investor Day event in Seoul, April 9. Courtesy of Kia

Experts said local carmakers need to take a longer-term approach for their U.S. operations by increasing production there, as short-term losses are inevitable.

Lee Ho-geun, an automotive engineering professor at Daeduk University, urged Hyundai Motor, Kia and Genesis to assemble more models in the U.S.

“One of the most realistic countermeasures for Hyundai Motor Group is to increase the number of locally produced models there,” Lee said.

His remarks reflect the carmakers' reliance on exports for the sale of highly sought-after hybrid cars in the U.S.

Hyundai Motor’s Santa Fe SUV is the only hybrid model that is produced in the U.S. All other models powered by the same engines are assembled in Korea for export to the U.S. The carmaker plans to start production of hybrid vehicles at Hyundai Motor Group Metaplant America in Georgia next year.

Hyundai Motor CEO Jose Munoz plans to share the company's updated U.S. strategy during the upcoming CEO Investor Day event in New York on Thursday to ease mounting concern from investors.

Kim Pil-soo, a professor of automotive technology at Daelim University College, said the Korean government should draw up a supplementary budget for tariff-hit carmakers and auto parts manufacturers here.

“It is not desirable for the government to leave the carmakers exposed to tariff shocks for a long time, as the auto industry is Korea’s key pillar for exports,” Kim said. “Once they lose their global competitiveness, this will deal a severe blow to the local economy, so the government needs to allocate special budget for them to navigate the challenges and overcome the external risk.”