 Toll roads: How US tariffs are rewriting Korea's automotive playbookKyoung You Kim
No 4, i-KIET Issues and Analysis from Korea Institute for Industrial Economics and Trade Abstract: The second administration of US President Donald Trump is expected to impose a steep 25 percenttariff on imported automobiles and auto parts under Section 232 of the Trade Expansion Act, in keeping with its protectionist approach. - The high-tariff policy is aimed at encouraging more investment in US-based production and strengthening the competitiveness of the entire US automotive value chain. Given the South Korean auto industry’s heavy reliance on the US market, such high tariffs are expected to have far-reaching effects, necessitating adjustments to export and production strategies targeting North America. - Automakers are likely to increase local production in the US in order to offset the decline in exports, even as higher vehicle prices in the American market are expected to dampen demand, further reducing export volumes. - A large volume of vehicles destined for the US market are manufactured in the Korean city of Ulsan. USbound exports make up about 30 percent of all Ulsan-made auto exports, showing that the city’s automobile industry benefits from the US market but is not overwhelmingly reliant on it, making it somewhat shielded from the full impact of the tariffs. In contrast, the automotive industry in the Korean province of South Gyeongsang, which is more reliant on exports to the US, is likely to face greater disruption. The auto parts industry faces both direct and indirect challenges, including: the immediate impact of higher tariffs, a drop in demand caused by reduced auto production in Korea, and growing pressure from automakers to lower parts prices as they try to pass on the tariff burden down the supply chain. - US-based manufacturers do not yet source parts extensively from domestic parts suppliers. As a result, rising production costs are likely to erode profitability and lead to higher retail prices. The US auto market is expected to undergo significant changes as demand declines due to higher vehicle prices. The marketis slowly exhibiting a growing preference for smaller vehicles, and demand for aftermarket parts is growing as used car sales rise amid longer vehicle lifespans. - Growing demand for small cars could present an opportunity for Korean manufacturers, who have a competitive edge in this segment. However, Korean automakers produce few of their smaller medals in the US; this may restrict any potential gains to be had in this segment. - An increase in demand for aftermarket parts may also create opportunities for Korean suppliers to replace Chinese parts in the aftermarket space. Keywords: US tariffs; Trump; Trump tariffs; US-Korea trade; automotive industry; auto industry; auto exports (search for similar items in EconPapers) Published in i-KIET Issues & Analysis, No. 186 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ris:kietia:021440 Access Statistics for this paper More papers in i-KIET Issues and Analysis from Korea Institute for Industrial Economics and Trade Sejong National Research Complex, Korea Institute for Industrial Economics and Trade, 370 Sicheong Dae-ro C-dong 8-12F 30147, Republic of Korea. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.