Recently, Trump signed an executive order to implement a new trade agreement between the United States and Japan. According to official statements, the tariff on Japanese products exported to the U.S., including automobiles, will be reduced to 15% as early as mid-September. This outcome has put pressure on South Korea, one of its major competitors. Because the U.S.-South Korea tariff negotiations have not been completed, the country's automakers have had to continue bearing a "tariff nightmare" with a 25% tariff so far.

Trump signed the order, Japan's 15% tariff takes effect

The Chosun Ilbo pointed out that originally, South Korea believed it could complete the negotiations with the U.S. at the same time as Japan, reducing the tariff on auto parts to 15%. However, as a non-signatory country of the agreement, South Korea is still in the negotiation stage, and its progress lags far behind Japan. Now, the South Korean automotive industry has entered an "emergency state." Hyundai and Kia saw their operating profits decrease by over 1.5 trillion won in the second quarter of this year due to the 25% tariff. If the progress of lowering the automobile tariff continues to be delayed, the competitiveness of South Korean car brands in the U.S. market will significantly decline, and sales performance will inevitably experience a sharp drop!

Reuters mentioned in a report that Japan and South Korea are competitors in the U.S. automobile market. Before August, South Korea mainly focused on the progress of the U.S.-Japan tariff negotiations. If the latter progressed slowly, South Korea would not rush; if the latter made progress, South Korea would accelerate its negotiations with the U.S.

In fact, Japan reached an agreement with the U.S. as early as July 22, agreeing to reduce reciprocal tariffs and individual tariffs on auto parts to 15%. It also promised to invest $55 billion in the U.S. and open up its domestic automobile and rice markets. Upon hearing this news, South Korea quickly followed suit, also reaching a trade framework with the U.S. through the "investment for lower tariffs" model.

However, there were significant differences between the U.S. and Japan on details, which led to the delay of the actual tariff reduction timing. Now, with Trump's newly signed executive order, it means that this round of tariff negotiations between the U.S. and Japan has temporarily come to an end.

Korean and Japanese cars are competitors

With the U.S. officially granting Japan a 15% tariff rate on automobiles, South Korean automakers who have faced a 25% tariff so far face strong pressure. High tariffs have already caused the performance of major South Korean automakers to deteriorate, and the current tariff gap between South Korea and Japan will threaten its market share in the U.S.

Previously, South Korean cars enjoyed duty-free benefits under the "U.S.-South Korea Free Trade Agreement" until April this year. Meanwhile, Japanese and European cars faced a basic tariff of 2.5%. This tariff difference allowed South Korean car brands to maintain long-term price competitiveness. However, starting from this week, this situation will change dramatically. Japanese brands will face a 15% tariff, while South Korean automakers will be charged a tariff 10 percentage points higher than Japan's. If these tariffs are fully reflected in the selling prices, the prices of Japanese and South Korean cars may even reverse.

For example, the base price of the Hyundai model (Elantra) in the U.S. is currently $22,125, slightly cheaper than the Toyota model (Corolla), which sells for $22,325. However, if the prices are adjusted according to the tariff changes, this situation will reverse: the Hyundai car will directly increase to $27,656, while the Toyota car's price will be $25,674. Industry insiders in South Korea pointed out that in the past few months, Hyundai's profits have decreased by more than 1 trillion won solely due to the tariff. If sold at this price, sales, profits, and turnover will likely be even worse!

The Chosun Ilbo stated: Compared to Japan's unexpected major concessions, South Korea has been blocked in U.S.-South Korea trade negotiations due to its inability to resolve the opening of the agricultural and livestock product market and to determine the composition of the $200 billion investment project.

The tariff gap is too large, the South Korean automotive industry is in crisis

It is reported that the U.S. has continuously pressured South Korea to expand the opening of its domestic agricultural product market, but Seoul is extremely passive due to concerns about domestic farmers' backlash. This is very similar to the situations in India and Japan. In addition, regarding the $200 billion investment fund issue, the Trump administration hopes to directly decide on the projects that South Korea needs to invest in, but the South Korean government views this investment as a "financial portfolio" that includes loans and guarantees, and is unwilling to clearly specify which projects they intend to invest in. Therefore, it remains unknown when South Korean automakers will receive the 15% tariff!

Original text: https://www.toutiao.com/article/7548314942152196623/

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