US 15% and 25% Tariffs on Japanese and South Korean Cars Take Effect Today

Minister of Trade, Industry and Energy of South Korea, Kim Jeong-wan, ended his visit to the United States on the 14th and returned to South Korea. Just one day later, Director of the International Trade Negotiation Division, Yeo Han-woo, departed for the United States to discuss follow-up issues on the South Korea-US tariff negotiations. At the same time, starting from local time on the 16th, the US will reduce the tariff on Japanese cars from 27.5% to 15%, while the tariff on South Korean cars remains at 25%, raising concerns about export competitiveness.

On that day, Yeo Han-woo answered reporters' questions at Incheon International Airport, saying, "We are making every effort to achieve a reasonable negotiation result that is in the national interest." Previously, Minister Kim Jeong-wan visited the United States on the 10th and held follow-up negotiations with US Secretary of Commerce Howard Lutnick and others on tariff issues, but no significant results were achieved.

The "relay" visits by South Korean trade officials to the United States itself indicate that subsequent negotiations have not progressed smoothly. Currently, the South Korea-US tariff follow-up negotiations have stalled due to the inability to narrow differences over the investment structure of a $350 billion (about 486 trillion won) investment fund. The US has requested that South Korea implement most of the investment amount as direct investment, similar to Japan. On the 11th (local time), Secretary of Commerce Lutnick even said in an interview with CNBC, "If South Korea does not follow the Japanese model, it must bear a 25% tariff." However, a trade official explained, "The fact that Minister Kim Jeong-wan's visit to the US was followed by Minister Yeo Han-woo's continued visit to the US indicates that the dialogue channels with the US are still actively operating."

It is expected that Minister Yeo Han-woo will continue discussions with USTR representative Jamison Grier and other negotiators. On July 30th, local time, the two countries reached an agreement on improving non-tariff barrier agricultural product inspection procedures, which are expected to be the focus of this round of discussions. Professor Heo Young (音) of the School of International Studies at Sogang University analyzed, "If we accept the US requirements without any changes, we will face multiple risks such as foreign exchange market volatility, so we cannot completely accept them," "In order to reduce the US requirements for investment funds, the South Korean side may propose concession plans in the non-tariff barrier areas previously required by the US." However, Minister Yeo Han-woo clearly stated, "We will not open the agricultural product market further."

On the other hand, Japan, which has almost fully accepted the US requirements, will see its car tariffs reduced to 15% starting from local time on the 16th. Before the US imposed additional tariffs on cars, South Korean cars benefited from the Korea-US Free Trade Agreement (FTA) and enjoyed zero tariffs, thus having stronger price competitiveness compared to Japanese and European cars that applied basic tariffs (2.5%). But with the change in the tariff situation, the price competitiveness of South Korean cars in the US market will also weaken.

According to the automobile industry, the starting price of the Hyundai Elantra Hybrid in the US is currently 25,450 USD, lower than the 28,190 USD of the competing Toyota Corolla Hybrid. However, if the Japanese tariff is reduced by 15 percentage points, the price of the Corolla Hybrid will drop to 24,700 USD, resulting in a "price reversal" phenomenon. Securities industry estimates that if the South Korean car tariff to the US remains at 25%, the annual operating profit of Hyundai Motor and Kia Motors will be affected by approximately 2.2 trillion won and 1.3 trillion won respectively.

Source: JoongAng Ilbo

Original: www.toutiao.com/article/1843409903392780/

Statement: This article represents the views of the author.