[Alpha Biz= Paul Lee] SEOUL – South Korea and the United States have reached a tariff agreement that eases long-running trade tensions by lowering planned mutual tariffs from 25% to 15%. The deal, however, delivers a blow to South Korea’s auto industry, as U.S. tariffs on Korean vehicles will also be set at 15%, stripping away a long-held competitive edge.



The Office of the President announced on July 31 that the two nations agreed to apply 15% reciprocal tariffs starting August 1. The deal includes “most-favored nation” (MFN) treatment for semiconductors, pharmaceuticals, and other key exports, and no additional market openings for sensitive sectors such as rice and beef.



President Lee Jae-myung will travel to the U.S. within two weeks for a summit with President Donald Trump to formally sign the agreement.



Auto Industry Takes the Hardest Hit
 

Autos were at the center of the talks, given their importance to Korea’s trade:

27.2% of Korea’s exports to the U.S. are automobiles.

In 2023, auto exports totaled $70.8B, with the U.S. accounting for $34.7B (49.1%).

This figure is three times Korea’s U.S.-bound semiconductor exports ($10.7B).



Until now, Korean autos enjoyed a 0% U.S. tariff, unlike Japanese and EU vehicles facing 2.5%. The new 15% tariff eliminates Korea’s advantage and aligns it with Japan and the EU, potentially reshaping competition.



Hyundai Motor Group faces the biggest challenge: of the 1.7M vehicles it sold in the U.S. last year, only 690,000 (40%) were produced locally, leaving 60% of shipments exposed to the new tariff.



Despite Seoul’s push for a 12.5% tariff cap, the final agreement set the rate at 15%, disappointing negotiators and industry stakeholders.



Trade experts warn the tariff shift could erode market share for Korean automakers unless local U.S. production ramps up quickly, marking a turning point in the two countries’ trade dynamics.

 

 

 

 

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