Starting on the 16th, a 15% tariff will be applied to Japan-made cars entering the U.S. market. By contrast, Korea is still paying a 25% tariff after differences emerged in follow-up talks on tariff negotiations with the United States. Under the Korea-U.S. Free Trade Agreement (FTA), Korea had been subject to a tariff 2.5 percentage points lower than Japan, but now faces a tariff 10 percentage points higher. The longer the tariff gap persists, the more Korea's auto industry could see not only profitability but also competitiveness deteriorate.
According to Reuters and others on the 15th, an executive order on the "U.S.-Japan Trade Agreement" published in the U.S. Federal Register on the 9th will take effect on the 16th. It includes setting the tariff on Japan-made cars imported by the United States at 15%. Korea also agreed with the United States on a 15% automobile tariff, but it is still paying 25% because it failed to reach an agreement related to a $350 billion (about 486.6 trillion won) investment fund for the U.S. market.
Japanese cars compete with Korean cars in the U.S. market. According to Wiz Intelligence, in the U.S. hybrid market from January through August, Toyota and Honda held market shares of 51.1% and 17.0%, respectively, ranking first and second. Hyundai Motor and Kia are in third with 12.3%. With demand for electric vehicles sluggish and U.S. EV subsidies set to end later this month, Korea and Japan are focusing on selling hybrids.
Hyundai Motor and Kia produce most of their hybrids in Korea and export them. It is a structure in which they must absorb the full impact of the 25% tariff. Since April, when the United States began imposing a 25% automobile tariff, Hyundai Motor and Kia have held out without raising prices. As a result, in the second quarter alone, Hyundai Motor bore 828 billion won in tariff expenses, and Kia 786 billion won. In the second quarter, they responded by securing inventory ahead of the tariff taking effect, but even that is difficult now.
If Hyundai Motor and Kia pass the tariffs directly onto vehicle prices, they will become more expensive than Japanese cars. In the U.S. now, the Kia Sportage Hybrid sells for $30,290 (about 42.11 million won), and the Toyota RAV4 Hybrid sells for $32,850 (about 45.67 million won. If tariffs of 25% and 15%, respectively, are applied, the Sportage price becomes $37,863, making it more expensive than the RAV4 ($37,778).
Unlike Korea, Japan can respond with local production, which is another factor that could put Korea at a disadvantage. According to Nikkei Asia, Toyota is producing the RAV4 Hybrid and Lexus ES at its plant in Kentucky, and it has decided to halt production of the Lexus ES and increase hybrid output. Hyundai Motor plans to add a hybrid production line at its Georgia plant, but it will not be completed until next year.
Hyundai Motor will hold the "2025 CEO Investor Day" in New York starting on the 18th (local time). Shin Yun-chul, an analyst at Kiwoom Securities, said, "The North American hybrid market overwhelmingly favors Japanese brands, so Hyundai Motor needs to convey to local investors the factors that give it a competitive edge compared with Japanese hybrid offerings."