On Wednesday, South Korea unveiled urgent support strategies for its automotive industry, aiming to mitigate the impact of U.S. President Donald Trump’s newly imposed tariffs on a sector that has enjoyed substantial growth in exports to the U.S.
The announced measures encompass financial backing for car manufacturers as well as tax reductions and subsidies intended to stimulate domestic consumption. Additionally, the government committed to negotiations with the U.S. and initiatives designed to broaden market access.
Starting Thursday, Trump will enforce a 25% tariff on imported cars and light trucks, affecting over $460 billion worth of vehicle and auto part imports each year, as per a Reuters assessment.
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Manufacturers are likely to absorb part of the tariff costs in the first year but may subsequently adjust their production strategies, including potentially discontinuing the import of less popular models into the U.S.
The government acknowledged, “Due to the relatively low share of South Korean manufacturers’ domestic production in the U.S., our industry is at a significant disadvantage.”
Although the tariffs are projected to inflict notable harm on South Korean carmakers and parts suppliers, the government noted it was challenging to provide specific numerical predictions at this time.
To avert potential liquidity challenges, the government plans to increase policy financing assistance for automakers to 15 trillion won ($10.18 billion) by 2025, up from a previous target of 13 trillion won.
Taxes on automobile purchases will be reduced from the current 5% to 3.5% until June 2025, while subsidies for electric vehicles will rise to between 30% and 80% of the price discount, up from the prior 20% to 40%, with the deadline extended by six months to the end of this year.
The administration also stated it would proactively assist manufacturers in their efforts to penetrate export markets in the “Global South,” referring to developing nations in Africa, Latin America, and Asia, where demand is on the rise.
Regarding the tariffs imposed by the U.S., the government pledged: “We will strive to ensure that South Korea is not treated less favorably than other allies through negotiations and enhanced bilateral cooperation,” though specifics were not disclosed.
In 2024, South Korea’s automobile exports to the U.S. reached $34.7 billion, which represented 49% of its total auto exports.
Last week, Hyundai Motor announced it would maintain its vehicle prices for the next two months to alleviate customer concerns about the potential effects of the tariffs on dealership inventories.
This pricing program will be active until June 2 and follows Hyundai’s $21 billion investment in the U.S. announced the previous month.
Hyundai’s co-CEO, Jose Munoz, indicated there are currently no intentions to increase prices in the U.S., the company’s largest revenue-generating market.
Analysts opined that Trump might favor proposing steep tariffs as a tactic to gain swift concessions during negotiations, cautioning that such auto tariffs would likely escalate input costs across the board. In contrast to the supply chain for combustion engine vehicles, the electric vehicle (EV) supply chain may face greater challenges due to its reliance on China for parts.