ASSESSMENTS

U.S. Auto Tariffs Would Deliver a Particularly Painful Sting to South Korea

Oct 8, 2018 | 09:00 GMT

A worker assembles a vehicle in a Hyundai plant in China's Hebei province. South Korean automakers have increased their manufacturing capacity in China to A significant proportion of South Korea's auto manufacturing capacity in China to 2.1 million vehicles annually.

This photo taken on February 21, 2017 shows a worker in a Hyundai factory in Cangzhou, in China's northern Hebei province. The factory is the South Korean manufacturer's fourth in China and has an annual capacity of 300,000 cars. (STR/AFP/Getty Images)

(STR/AFP/Getty Images)

Highlights

  • Although South Korea renegotiated its free trade agreement with the United States this year, it failed to secure protection from threatened U.S. tariffs on automobiles. 
  • While South Korean auto manufacturing on U.S. shores provides the sector with some insulation, with its reliance on the U.S. market, tariffs would have sweeping effects. However, South Korea's smaller market for imports means that it cannot hope to eliminate the trade deficit. 
  • South Korea is likely to offer some sort of side agreement capping auto exports, while also dangling the prospect of stepping up its purchases of U.S. goods and its investment in the country.

Despite bending to U.S. pressure and agreeing both to revise the countries' free trade agreement and to accept export quotas on steel and aluminum, South Korea could still face tariffs on its vehicle exports to the United States. The government in Seoul is seeking ways to avoid the damage that tariffs could inflict on its auto manufacturing sector. But as U.S. President Donald Trump concentrates on strengthening U.S. manufacturing and rebalancing its trade relationships, the $22.6 billion trade deficit in goods between the two countries looms large. Although that deficit represents only a third of that between Japan and the United States and a small fraction of its $375 billion deficit with China, the South Korean trade imbalance has come under particular fire because of the role of automotive exports, which account for about 94 percent of that deficit....

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