With a special bill introduced in the National Assembly as a follow-up to the South Korea-U.S. tariff talks, the requirements were met to retroactively apply auto and parts tariff cuts as of the 1st of this month. As the bilateral talks were delayed, domestic corporations that had been paying tariffs 10 percentage points higher than Japan are relieved. Still, some say uncertainty remains because the previous zero-tariff benefit has fully ended.
On the 26th, the Democratic Party of Korea introduced a Special Act for Strategic Investment Management between South Korea and the United States as a follow-up to the tariff talks. Earlier, the United States had promised to lower the tariff on autos and parts from the existing 25% to 15% starting on the 1st day of the month in which the special bill is submitted to the National Assembly. Immediately after the bill was introduced, the Ministry of Trade and Industry (MOTI) sent a letter in the name of Minister Kim Jung-kwan to the U.S. Department of Commerce to convey this.
This satisfies the domestic requirement for auto and parts tariff cuts to be retroactively applied as of the 1st of this month. Once the same content is published in the U.S. Federal Register, all bilateral work to lower auto and parts tariffs will be complete.
With the auto and parts tariff lowered to 15%, the industry is relieved. The United States began imposing a 25% item tariff on autos in April and on auto parts in May, but in September it reduced the rate to 15% only for Japanese cars. As a result, our corporations had to bear a tariff rate 10 percentage points higher than competitors, and Hyundai Motor and Kia ultimately suffered tariff damages amounting to 1.821 trillion won and 1.234 trillion won, respectively, in the third quarter.
Hyundai Motor Group Chair Chung Eui-sun said on the 19th that it was fortunate the auto and parts tariff would be retroactively applied as of Nov. 1, adding that it would be better for us if the 15% tariff applies even one month sooner. With the tariff lowered, he also said he expects the U.S. market business to improve next year.
In fact, according to financial data firm FnGuide, this year Hyundai Motor and Kia's operating profit is forecast to fall 11.4% and 26.2%, respectively, from a year earlier, but next year to rise 6.0% and 9.8%. NICE Investors Service also said Hyundai Motor Group's tariff expense would reach 8.4 trillion won at a 25% rate but would drop to 5.3 trillion won if reduced to 15%.
Still, some say uncertainty remains because the zero-tariff effect under the South Korea-U.S. free trade agreement (FTA) has completely disappeared. An industry official said that until then, Korean cars faced a 0% tariff and Japanese cars 2.5% in the U.S. market, but now they must compete on equal footing, adding that tasks such as weakened price competitiveness, reduced domestic production due to expanded local manufacturing, and export diversification are piling up.