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With U.S. tariffs set to hit in full force, Korea Inc. braces for vicious tailspin

Published: 02 Jul. 2025, 17:48 Updated: 02 Jul. 2025, 18:43

Cargo waiting to be exported at the Pyeongtaek Port in Gyeonggi on July 1 [YONHAP]

With the expiration of the tariff suspension declared by U.S. President Donald Trump coming on July 8, anxiety is mounting in Korea's automobile, steel and home appliance sectors.

Currently, the United States imposes tariffs of 25 percent on completed vehicles and auto parts, and 50 percent on steel and home appliances. Korean companies are already facing a decline in exports as a result.

Cars — Korea’s top export to the U.S. last year at $42.4 billion — have been hit particularly hard. According to Korea Customs Service trade statistics released Wednesday, exports of finished vehicles to the United States in May amounted to $2.51 billion, down 27.2 percent from $3.45 billion in May last year. During the same period, exports of auto parts also declined by 3.4 percent from $535.82 million to $517.42 million. Tariffs on vehicles were implemented on April 3 and on auto parts on May 3.

Sales of Hyundai Motor and Kia in the United States also fell by 17.5 percent, from 170,251 units in May to 140,374 in June.

Lee Ho-geun, professor of future automotive studies at Daedeok University, said, “They boosted sales in April and May by focusing on inventory that cleared customs duty-free, but once that stock ran out in June, sales dropped.”

A 3D-printed miniature model of U.S. President Donald Trump, U.S. Flag and word ″Tariffs″ are seen in this illustration taken, April 2, 2025. [REUTERS/YONHAP]

Hyundai and Kia are likely to raise prices in the United States after the tariff-free pricing deadline on July 8. Toyota has already raised its U.S. prices by an average of $270 starting Tuesday, July 1. However, concerns remain that such price hikes could weaken price competitiveness.

Although the brands are expanding local production in the United States, progress has been slow. The new Metaplant in Georgia, which aims for an annual production capacity of 500,000 units, produced 8,674 units in May — only 22 percent of its monthly target of around 40,000.

“They will likely focus on maintaining market share through low-margin, high-volume sales of popular models,” said Kwon Yong-joo, a professor of automotive transport design at Kookmin University. “This is a short-term measure. If tariff negotiations between governments fail to reduce rates, companies may not be able to hold out much longer.”

'The more we export, the more we lose'

The auto market isn't suffering on its own. Tariffs on steel and aluminum, which had been set at 25 percent since March 12, increased to 50 percent on June 4.

Cargo waiting to be exported at the Pyeongtaek Port in Gyeonggi on June 30 [YONHAP]

According to the Korea Customs Service, Korea’s steel exports to the United States in May stood at $179.54 million, a 15.9 percent decline from the same month last year. Expectations are that June’s figures will fall further.

“Because Korean steel is 20 to 30 percent cheaper than U.S. steel, demand remained stable even with a 25 percent tariff,” said Kim Tae-hwang, professor of international trade at Myongji University. “But a 50 percent tariff turns exports into a loss-making venture.”

According to the Korea International Trade Association, 13.1 percent of Korea’s steel exports last year went to the United States. By company, the U.S. share of steel exports was 10.6 percent for Posco, 33 percent for Hyundai Steel and 36.5 percent for SeAH Steel.

“While Korean companies do not rely heavily on U.S. exports for products like hot-rolled, cold-rolled and heavy plates, those that export energy-related steel pipes are heavily exposed and will inevitably be impacted," said Sohn Young-wook, head of the Institute for Steel Industry Analysis.

A source in the steel industry added, “We’re reviewing ways to increase sales of high-value-added products like cold-rolled automotive steel in Europe,” but noted, “With Europe also raising trade barriers, success will ultimately depend on whether we can offer globally competitive high-quality products.

Washing machines displayed at a retail store in Seoul on June 13 [NEWS1]

Home appliance sector also hit

Starting June 23, the Trump administration began imposing tariffs of up to 50 percent on imported refrigerators, dryers and washing machines based on their steel content, dealing a blow to the home appliance industry.

"The appliance business already operates on thin margins, so profit declines are inevitable,” a source in the industry said.

Appliance makers are already bracing for poor second-quarter earnings. Eugene Investment & Securities predicted a zero percent operating profit margin for the Consumer Electronics division of Samsung Electronics. NH Investment & Securities forecast a drop in LG Electronics’ Home Appliance & Air Solution division’s margin from 9.6 percent in the first quarter to 6.3 percent in the second.

Ultimately, companies are likely to pass rising costs on to consumers.

“If prices go up, demand will drop further, leading to a vicious cycle of reduced revenue,” said another industry insider.

U.S. President Donald Trump speaks as he visits a temporary migrant detention center informally known as ″Alligator Alcatraz″ in Ochopee, Florida, U.S., July 1, 2025. [REUTERS/YONHAP]

Meanwhile, if the Trump administration proceeds with reciprocal tariffs as scheduled starting July 9, shifts in export competitiveness are expected across machinery, electronics and electrical products.

Countries with lower reciprocal tariff rates than Korea — including Japan at 24 percent and Germany at 20 percent — may gain a pricing edge in machinery. However, Korea could benefit in competition with countries facing higher reciprocal rates, such as China at 54 percent, Vietnam at 46 percent, Taiwan at 32 percent and India at 26 percent.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM HYO-SEONG, OH SAM-GWON, PARK HAE-LEE [[email protected]]