As U.S. President Donald Trump announced mutual tariffs, the domestic securities industry evaluated it as the worst-case scenario. The reasoning is that the pressure of slowing growth in the U.S. economy will also shrink the stock market. Additionally, there is an increasing possibility that countries subjected to tariffs could impose retaliatory tariffs on the U.S.
With automobiles being one of South Korea's key export items to the U.S., the related industry is expected to suffer significant impact. Trump directly criticized South Korean cars, saying, "In some cases, allies have treated us worse than enemies." Semiconductors are excluded from mutual tariffs, but IT devices are not, so they are expected to not be seriously affected.
On the 3rd, Jo Yeon-joo, a researcher at NH Investment & Securities, said, "(The U.S. universal tariff is) an announcement close to the worst-case scenario," adding, "Since the policy was disclosed, all indicators are reflecting the possibility of an economic recession."
In our time zone, early that morning, the U.S. disclosed mutual tariffs exceeding the basic tariff on major trading partners. By country, the rates are: Vietnam 46%, Thailand 36%, China 34%, Taiwan 32%, Indonesia 32%, South Korea 25%, Japan 24%, Malaysia 24%, European Union 20%, and the United Kingdom 10%.
Researcher Jo stated, "Since the implementation of the Smoot-Hawley Act in 1930, the average effective tariff rate in the U.S. has risen to 20%" and predicted, "With this Trump tariff policy, the average effective tariff rate in the U.S. will rise to 28%," marking the largest tariff rate increase in a century. The United Kingdom and the EU have announced immediate retaliatory tariffs, taking a hardline stance.
If the U.S. economy slows due to tariffs, corporate earnings forecasts will inevitably decline. During the first term of the Trump administration in 2018, the Standard & Poor's 500 Index fell 16% from its peak as trade conflicts escalated. Researcher Jo explained, "As multiples contraction occurs, downward pressure on stock prices will increase."
Domestic automobile manufacturers, including Hyundai Motor and Kia, are also in a tough spot. A tariff of 25% has been imposed. According to last year's figures, 54% of Hyundai's exports were directed to the U.S. Kia's figure is also high at 38%. This shift to focus on exports to the U.S. was due to the revision of the Korea-U.S. Free Trade Agreement (FTA) in 2018.
They are currently in a situation where producing vehicles for the U.S. market is challenging. The mutual tariff rates for countries where Hyundai and Kia have completed vehicle factories, such as Vietnam (46%), India (26%), and Indonesia (32%), are higher than those of South Korea (25%) or the import tariffs on foreign vehicles (25%). Countries with lower mutual tariff rates than South Korea, such as the EU (20%), Brazil (10%), Turkey (10%), and Singapore (10%), do not have production lines for popular U.S. vehicles like large sports utility vehicles (SUVs), hybrids (HEVs), or Genesis models.
Moon Yong-kwon, a researcher at Shinyoung Securities, noted, "Unless mutual tariffs and tariffs on imported vehicles are adjusted through negotiations by country, there is no choice but to increase production in the U.S." He added, "As local U.S. production increases to avoid tariffs, exports from domestic factories to the U.S. will decline," which could negatively affect South Korea's automobile production, which has dropped from the fifth to the seventh largest globally.
While semiconductors are exempt from this large mutual tariff, there's no room for complacency. Cha Yong-ho, a researcher at LS Securities, said, "Tariffs on IT devices have not been exempted," and given that most assembly of sets is done in countries with lower labor costs, such as China, India, Vietnam, and Mexico, demand will inevitably be impacted.
However, some analysts believe that the mutual tariffs could be adjusted down through future negotiations. The announcement is scheduled for the 9th, so there is still time left. Hwang San-hae, a researcher at LS Securities, said, "The uncertainty that was expected to be resolved by the 2nd has been extended to the 9th" and predicted, "As negotiations progress, the uncertainty will gradually ease, rather than the market responding to current concerns."