DETROIT — With President Donald Trump considering raising tariffs on U.S. trading partners, the auto industry faces potential impacts, particularly on South Korea and Japan. These East Asian countries collectively accounted for 16.8% of vehicles sold in the U.S. last year, with South Korea and Japan contributing 8.6% and 8.2% respectively, according to data from GlobalData shared with CNBC.
These countries, major vehicle importers to the U.S. after Mexico, currently face minimal tariffs compared to the 25% tariff threatened on Canada and Mexico by President Trump. Automakers like General Motors and Hyundai Motor, based in South Korea, export vehicles to the U.S. without tariffs. South Korea surpassed Japan and Canada last year to become the second-largest exporter of new cars to the U.S., trailing only Mexico.
Despite facing a 2.5% tariff for automakers like Toyota, Nissan, and Honda, Japan’s share of U.S. auto sales has decreased over the years while South Korea’s exports have been on the rise. South Korea currently imposes no tariffs on cars, despite a trade deal renegotiated with the U.S. in 2018.
The potential impact of tariffs extends beyond cars to trucks, which face a 25% tariff when exported from South Korea and Japan. The imposition of tariffs could result in increased costs for companies, possibly passed on to consumers, leading to higher vehicle prices and reduced demand.
GM and Hyundai are prominent players in the U.S. auto market. Hyundai is the largest exporter of vehicles to the U.S., followed by GM and Kia Corp., a subsidiary of Hyundai. GM has significantly increased its imports from South Korea in recent years, emphasizing entry-level models.
GM, as the largest foreign direct investor in Korea’s manufacturing industry, has heavily invested in its operations in the country since 2002. Producing popular crossovers like Buick Encore GX and Chevrolet Trailblazer in South Korean plants, GM aims to drive growth in the lower-margin vehicle segment.
“We are reducing costs of programs, enhancing profitability, and developing vehicles that customers adore, such as the newly launched Chevy Trax and the Buick Envista,” stated GM President Mark Reuss at the company’s investor day in October. “The successful introduction of Trax and Envista has led to a notable increase in our share of the U.S. small SUV market, reaching its highest level since 2007.”
Regarding potential tariffs on South Korea, Hyundai did not provide an immediate response when contacted. GM and Kia chose not to comment on the matter.
Terence Lau, the dean of the College of Law at Syracuse University and a former trade expert at Ford Motor, emphasized the importance of free trade in the automotive industry. He mentioned that while the industry can adapt to tariffs, it requires time to make adjustments. Lau expressed, “The automotive industry can adapt to various challenges, but what it struggles with is sudden and significant changes.”
Lau pointed out that while a single-digit tariff may be a minor inconvenience, tariffs reaching 10% or higher could significantly impact product margins.
Ford Motor CEO Jim Farley recently advocated for a comprehensive approach to tariffs in the automotive industry. He suggested that any tariffs implemented should apply uniformly across all countries to ensure fair competition in North America. Farley highlighted Toyota and Hyundai as examples, mentioning the significant number of vehicles imported from Japan and South Korea annually.
During Ford’s fourth-quarter earnings call with investors, Farley emphasized the need for a balanced and inclusive tariff policy. He warned against selectively targeting specific countries, as this could provide an advantage to import competitors.
President Trump recently signed a presidential memorandum outlining plans for reciprocal tariffs on foreign nations. While details on the targeted countries were not disclosed, Trump had previously indicated the possibility of imposing tariffs on all U.S. imports.
The report includes insights from CNBC’s Kevin Breuninger.
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