As Japan and the United States reached a deal on tariffs, the Korean automobile industry, its largest competitor, is looking at the government with concern. Since Japan's automobile tariff rate has been reduced by half, there is room for compromise with Korea, but if an agreement cannot be reached at a similar level, it will fall behind in price competition in the U.S. market.
According to industry sources on the 24th, the Hyundai Motor Group tariff response task force (TF) team is analyzing the background of the tariff negotiations between Japan and the United States. The TF, established shortly after the inauguration of the Donald Trump administration, is devising tariff response strategies.
As Japan agreed to lower automotive item tariffs from the existing 25% to half, tension has increased in the domestic automobile industry. Japanese automobiles face a 15% tariff, which includes the existing rate of 2.5%.
The Korean government was planning to hold talks with the United States on the 25th to reduce the tariff rate to a level similar to Japan's, but the U.S. side suddenly canceled, postponing the meeting. Starting from August 1, Korea will impose a mutual tariff of 25%, with product-specific tariffs of 25% and 50% applied to automobiles and steel/aluminum, respectively.
Hyundai Motor, which has been in a market share battle with Japanese cars in the United States, is likely to be affected by the results of future negotiations. In the first half of this year (January to June), Hyundai Motor Group recorded its highest sales ever in the U.S. with 893,152 units sold, though it fell short of Toyota (1,236,738 units) and surpassed Honda (739,151 units).
If the tariff rate on Korean imported cars does not drop to the level of Japanese cars, Hyundai Motor will inevitably lose its price competitiveness in the U.S. The price of the Hyundai Sonata, which competes with the Toyota Camry and Honda Accord in the local mid-sized sedan market, is about 5-6% cheaper than these models. In the sports utility vehicle (SUV) market, the price of the Hyundai Tucson is about 10% lower than that of the Toyota RAV4 and Honda CR-V.
Until now, Hyundai Motor has managed to hold off on price increases, but as the inventory accumulated before the tariff implementation is exhausted, it is in a situation where it must pass on costs to consumers. Hyundai Motor faces a dilemma of either maintaining market share while enduring a decrease in profits or raising prices, which is expected to lead to a drop in market share.
The steel industry, which had hoped for a reduction in item tariffs alongside automobiles, has deepened its concerns. As the United States has maintained the 50% tariff it imposed on Japanese steel and aluminum, it is projected that it will be difficult to reduce tariffs only for Korean products.
The government plans to propose a local investment plan worth $100 billion (approximately 137 trillion won) to major domestic corporations for U.S. tariff negotiations. Japan has established a $400 billion (approximately 547 trillion won) fund for U.S. investment in order to negotiate tariffs, which President Donald Trump raised to $550 billion (approximately 753 trillion won) during the negotiation process.