U.S. President Donald Trump said on the 26th (local time) that he would again raise tariffs on Korean-made automobiles and other goods to 25%, putting Korea's auto industry once more in the face of major management uncertainty. If his remarks become reality, Hyundai Motor Group's tariff burden could increase by nearly 3 trillion won a year, and its capacity to invest in several new-growth businesses, including Robotics and Autonomous Driving technologies, is likely to weaken.
Trump said on his Truth Social that "tariffs on Korean-made automobiles, lumber, pharmaceuticals, and all other reciprocal tariffs will be raised from 15% to 25%," adding, "the Korean National Assembly is not implementing the agreement with the United States." Trump, however, did not mention a specific timing for the increase.
Trump appears to have taken issue with the fact that the Special Act for Korea-U.S. Strategic Investment Management, the so-called Special Act on Investment in the United States, has not passed the National Assembly. In July last year, Korea and the United States concluded a trade agreement that set the tariff cap at 15% and expanded Korea's investment in the United States. After that, led by the Democratic Party of Korea, an agreement for ratification (approval) was introduced in November, but it has yet to pass a plenary session.
The Trump administration raised tariffs in April last year to 25% on automobile-exporting countries including Korea. It then concluded trade negotiations with each country to lower tariffs, and tariffs on Korean-made cars including Hyundai Motor and Kia were reduced to 15% starting in November.
After easing tariff burdens at the end of last year and recently focusing on Robotics and Autonomous Driving development, Hyundai Motor Group has hit another snag.
The securities industry had expected Hyundai Motor Group's results to improve markedly this year thanks to U.S. tariff cuts. Hanwha Investment & Securities lowered its estimate of Hyundai Motor's annual tariff burden from 6.5 trillion won (with a 25% levy) to 3.9 trillion won (with a 15% levy). For Kia, it expected a reduction from 3.9 trillion won (with a 25% levy) to 2.4 trillion won (with a 15% levy).
According to financial data firm FnGuide, securities firms forecast Hyundai Motor's sales this year to rise 4.5% from a year earlier to 196 trillion won, with operating profit up 8% to 13.44 trillion won. Kia's sales are expected to increase 5.2% to 120 trillion won, with operating profit up 11.6% to 10.1 trillion won.
If tariffs rise back to 25% as Trump wants, the outlook would inevitably change significantly. In the third quarter of last year, when the 25% tariff was fully applied, Hyundai Motor shouldered 1.8 trillion won in tariff expenses, and Kia bore 1.2 trillion won. Last year, Hyundai Motor and Kia were able to reduce tariff burdens thanks to large inventories stockpiled in the United States, but inventories are now said to have run dry.
NICE Investors Service estimated in its Automobile Industry Review published last year that if the U.S. auto tariff remains at 25%, Hyundai Motor Group's annual tariff expense would exceed 8 trillion won.
Hyundai Motor was in fact hit hard during the period when high tariffs were in effect. In the third quarter of last year, Hyundai Motor's total sales volume rose 2.6% year over year to 1,038,353 units, but operating profit plunged 29.2% to 2.5373 trillion won. Because tariffs were not reflected in selling prices, it sold many cars yet effectively did business at a loss.
If the 25% tariff persists for a long time, speculation about GM Korea's withdrawal could resurface. Because most of GM Korea's revenue depends on exports to the United States, the imposition of high tariffs would make it difficult to operate plants domestically.
An official in the finished car industry said, "If tariffs are raised to 25%, the competitiveness of Korean cars in the North American market can only rapidly weaken," adding, "in particular, parts makers and partner firms that depend on domestic production by Hyundai Motor, Kia, and GM Korea are highly likely to wither away." According to Hyupshinhoe, the association of GM Korea's partner firms, as of last year there were 276 first-tier partners for GM Korea.
Meanwhile, the presidential office said that Kim Jung-kwan, Minister of Trade, Industry and Resources, who is staying in Canada to support the Canadian submarine project, will move to the United States to meet Trump administration officials including Commerce Secretary Howard Lutnick. Hyundai Motor Group Chairman Chung Eui-sun and Vice Chairman Chang Jae-hoon, who accompanied Kim, are also expected to move to the United States or discuss countermeasures via videoconference.