President Donald Trump has signed an executive order concerning the trade agreement with Japan, paving the way for reduced tariffs on Japanese automobiles entering the U.S. market. Trump has ordered that the tariff on imported Japanese cars be lowered from 25% to 15%, with the change set to take effect within a week.
Meanwhile, South Korea has also reached an agreement with the U.S. to lower automobile tariffs to 15%. However, delays in implementing the executive order have put South Korea at risk of temporarily losing its price competitiveness against Japan, a key rival in U.S. auto exports.
South Korean trade officials are closely monitoring the details of the U.S. executive order and its implementation process. They are eager to advance discussions on fulfilling the Korea-U.S. trade agreement, including the reduction of tariffs on Korean automobiles.
U.S. Adjusts Japanese Auto Tariff to 15% Ahead of South Korea… Government Aims for Parity with Japan and the EU
According to the Ministry of Trade, Industry and Energy and related departments, trade officials have been engaged in follow-up consultations with their U.S. counterparts since a tariff negotiation agreement was reached on July 30. These discussions seek to resolve various issues agreed upon during negotiations, including U.S. investment details.
During recent Korea-U.S. tariff negotiations, Seoul pledged 350 billion USD in U.S. investments and 100 billion USD in U.S. energy purchases. In return, Washington agreed to reduce mutual tariff rates from 25% to 15%, including the current 25% tariff on automobiles.
Despite this agreement, South Korean automobiles still face a steep 25% tariff when exported to the U.S. In order to adjust these tariffs, President Trump must sign an executive order—a decision that the U.S. has been delaying.
Some speculate that disagreements between South Korea and the U.S. regarding the promised 350 billion USD investment package have contributed to this delay. At the recent Korea-U.S. summit, South Korea pushed to formalize the trade agreement, but the U.S. insisted on including specific details regarding U.S. investments and profit allocation, leading to an impasse.
Trade officials believe that Japan prioritized reducing automobile tariffs and managed to secure some agreement on U.S. investment requirements, thereby obtaining the executive order. In response, the South Korean government intends to carefully review Japan’s agreement with the U.S. before deciding how to proceed with formalization.
A South Korean trade official stated that they are currently reviewing the full text of the U.S.-Japan executive order. Further noting that they are also in close discussions with the U.S. regarding financial packages. He added that they are working hard to ensure that they are not at a disadvantage compared to Japan and the European Union (EU).
However, when asked about the timing of the executive order’s implementation, he cautioned that speculating on the timing could be risky, and refrained from further comment.
The U.S. is currently delaying the implementation of the tariff reduction agreement, which South Korea considers highly sensitive. Some interpret this as a strategy by the U.S. to use the automobile issue as leverage for further concessions. In addition to clarifying U.S. investments, demands for opening agricultural markets—representing non-tariff barriers—are also notable.
Auto Industry Under Pressure… Government Urged to Act Swiftly in Light of Industry Losses
As Japan’s reduction of automobile tariffs becomes increasingly likely, anxiety is mounting within the South Korean automotive industry. While Japanese cars may soon benefit from a 15% tariff, South Korean automobiles continue to face a hefty 25% tariff.
Previously, South Korean cars enjoyed a competitive edge against Japanese and EU vehicles, which faced a basic tariff of 2.5%, thanks to the tariff-free benefits provided by the Korea-U.S. Free Trade Agreement (FTA). However, the Trump administration’s imposition of a 25% tariff eroded that advantage. Japan’s early confirmation of a 15% tariff has further intensified the pressure on South Korean automakers.
In their second-quarter earnings reports, Hyundai Motors (Hyundai) and Kia disclosed that they suffered a combined operating profit decline of 1.6 trillion KRW (about 1.15 billion USD) due to U.S. tariff burdens.
Industry sources estimate that if the tariff were reduced from 25% to 15%, monthly losses would decrease to about 320 billion KRW (about 230 million USD). Each month of delay in tariff reduction results in an additional loss of roughly 210 billion KRW (about 151 million USD), or about 7 billion KRW (about 5.03 million USD) daily. This situation could trigger a domino effect, causing delays in new car launches and reduced research and development (R&D) investments, thereby further heightening industry tensions.
As Japan successfully secures implementation of its trade agreement with the U.S., calls for swift action from the South Korean government are growing louder. Critics argue that, just as Japan engaged in high-level visits and behind-the-scenes negotiations following the agreement, South Korea should adopt a more proactive approach.
On July 22, Japan agreed to lower U.S. tariffs, including automobile tariffs, to 15% in exchange for a 550 billion USD investment and the opening of its automobile and rice markets.
However, like South Korea, Japan initially did not produce a joint document and presented differing interpretations in favor of each country. After about six weeks of negotiations following the July agreement, they finally reached a conclusive deal.
Experts predict that the Trump administration will continue using the automobile sector—a key export industry for South Korea—as leverage for further concessions. With limited alternatives, some have suggested combining the Make American Shipbuilding Great Again (MASGA) project with the defense industry to enhance negotiating power.
Song Young-kwan, a senior researcher at the Korea Development Institute (KDI), noted that Trump knows that we are very sensitive about automobiles, so he is likely using this as leverage. Song added that this situation may continue for some time.
He added that while it does not have many immediate options, it could propose expanding cooperation in shipbuilding, an area in which Trump has a particular interest, to include the defense industry. Further noting that this could potentially boost its negotiating power.
Jang Sang-sik, head of the International Trade and Commerce Research Institute at the Korea International Trade Association, emphasized that automobiles are a crucial export item for South Korea. He urged the government to accelerate efforts to implement the trade agreement, given the mounting losses in the industry.
Jang advised that if U.S. demands prove to be stringent, the government should consider making concessions in less critical domestic sectors and begin persuading those industries accordingly.