The United States, following Japan, has reached a final agreement with the European Union (EU) to cut auto tariffs. While rival countries receive a 15% tariff rate, Korea, which has not yet wrapped up negotiations, remains at a disadvantage, having to continue paying a high 25% tariff. Concerns are mounting that weakened price competitiveness in the U.S. market could become a reality.
According to Reuters and others on the 24th (local time), the U.S. government set the tariff rate on European automobiles and related parts at 15%. The Department of Commerce and the Office of the U.S. Trade Representative (USTR) disclosed the details in advance ahead of publication in the Federal Register. The measure is retroactive to Aug. 1. European corporations that paid more than 15% after that date can receive refunds of the difference.
The announcement is a follow-up to the joint statement on a trade agreement released by U.S. President Donald Trump and the EU on Jul. 21. At the time, the two sides agreed to lower tariffs on European cars to 15%. President Trump signed a related executive order on the 5th, formalizing the tariff adjustment.
However, as a condition for adjusting tariffs, the United States asked the EU to first eliminate tariffs on U.S.-made manufactured goods. Separately, the EU also prepared a bill to guarantee preferential market access for certain agricultural products. As the EU responded to U.S. demands by unveiling a draft bill on the 28th of last month, the United States is seen to have completed the final step in lowering car tariffs.
Beyond automobiles, the U.S.-EU deal also included tariff exemptions for "irreplaceable natural resources" such as aircraft parts, certain pharmaceutical ingredients, cork, and specific metals. Analysts say the United States is taking a pragmatic approach of carving out exceptions for items essential to its industries as it resets trade ties with allies.
European automakers immediately welcomed the tariff cut news. According to Bloomberg, Porsche rose 2.2% on the German stock market on the 24th. At one point intraday, Porsche jumped as much as 3.8%. BMW and Mercedes-Benz also gained 1.4% and 1.1%, respectively.
With the EU, Korea's biggest competitor after Japan, also gaining tariff benefits, Korea alone is competing in the U.S. market while shackled by a 25% tariff. The relatively high tariff is seen as a serious threat to the price competitiveness of Korean cars such as Hyundai Motor and Kia in the U.S. market.
Since April this year, the Trump administration has been pressing to apply Section 232 of the Trade Expansion Act, which imposes high tariffs on imported steel and aluminum for national security reasons, to automobiles as well. The strategy is to use a "tariff bomb" as leverage in bilateral trade talks with each country to secure favorable outcomes. Japan and the EU quickly concluded negotiations and secured a 15% tariff rate, but Korea has yet to join them.
Korea also reached an agreement in principle with the United States in Jul. to lower auto tariffs to 15%. However, follow-up talks to iron out details have stalled, delaying a final deal. As a result, Korean cars are still subject to a 25% tariff.
Bloomberg said, "This measure will further ease tensions between Washington and Brussels." Conversely, it suggests that trade pressure on Korea, which has not yet reached an agreement, could grow. Reuters also reported that "European automakers have been waiting for an official announcement for weeks," assessing that the measure has removed uncertainty for the industry. Korea's auto industry still carries precisely this uncertainty.
In the auto industry, calls are growing for the government to swiftly conclude negotiations with the United States. There is a pervasive sense of urgency that Korea cannot stand by while competitors target the U.S. market with lower tariffs.