U.S. President Donald Trump has raised concerns in the automotive industry, which heavily relies on exports to the U.S., as he warned that tariffs would be imposed on major countries. In particular, the automotive parts industry is already facing the impact of tariffs on steel and aluminum, and since the proportion of small and medium-sized suppliers is high, the damage is expected to be significant.
Trump noted that he would impose reciprocal tariffs on major trading partners on the 2nd of next month, while also introducing additional tariffs on items such as automobiles and semiconductors. Currently, the U.S. does not impose tariffs on South Korean automobiles under the Korea-U.S. Free Trade Agreement (FTA), but it remains uncertain whether they will be exempt under this new measure.
The U.S. administration has stated that South Korea is not exempt from reciprocal tariffs or tariffs on imported vehicles. U.S. Secretary of State Marco Rubio mentioned on the 16th (local time) that there are plans to establish new trade agreements through bilateral negotiations with each nation following the imposition of tariffs, and it is anticipated that a revised FTA and a new agreement to replace the existing FTA may be concluded.
Automobiles are South Korea's key export item to the U.S., accounting for 27% of the total export volume to the U.S. last year (the highest). Out of the 4.13 million vehicles produced domestically last year, 2.78 million were exported, with more than half, or 1.43 million, heading to the U.S. Exports to the U.S. accounted for 34.7% of domestic automobile production and 51.5% of total exports.
The export scale of automotive parts has also been steadily increasing. According to the Korea Automobile Manufacturers Association, the export value of automotive parts to the U.S. was $6.912 billion in 2021, $8.03 billion in 2022, $8.087 billion in 2023, and last year it reached a record high of $8.222 billion (approximately 12 trillion won). The share of U.S. exports accounts for about 36.5%, greatly surpassing that of the European Union (EU) and Mexico.
The automotive parts industry is already concerned about a decline in price competitiveness due to the U.S. tariffs on steel and aluminum. On the 12th (local time), the U.S. administration imposed a 25% tariff on steel and aluminum, and also placed tariffs on 253 derivative products, including 87 automotive parts such as bumpers and car bodies. The tariff rates are determined based on the steel and aluminum content in each part.
In the case of automotive parts, most are small and medium-sized suppliers, so the impact is expected to be even greater. While large enterprises or mid-sized first-tier suppliers may invest in local facilities, small parts suppliers have limited investment capacity and maintain a high proportion of domestic production.
According to the ‘Automotive Parts Industry Status Survey’ released last year by the Korea Automotive Research Institute, there are a total of 15,239 domestic parts suppliers, divided into first-tier suppliers (952 companies), second-tier suppliers (2,577 companies), and third-tier suppliers (9,536 companies). Among these, 50.3% are businesses with fewer than four employees, and 27.6% have sales of less than 500 million won.
The Korea Institute for Industrial Economics and Trade analyzed that if the U.S. administration's plan to impose a 25% tariff on automobiles materializes, South Korea's automobile production and export performance will sharply decline. Exports of automobiles to the U.S. are expected to decrease by 20.5% in total, and with increased local production by automotive companies in the U.S., domestic production is predicted to drop by 700,000 to 900,000 units.