The escalating trade tensions between the U.S. and Canada, impacting key sectors like automotive and steel, are complicating strategies for South Korean firms in the North American market. Hyundai Motor Group, with its established U.S. production base, is poised to gain an edge over competitors with Canadian facilities. However, rising costs across the North American supply chain remain a significant concern.
While the steel industry anticipates potential benefits from reduced Canadian supply, the prospect of increased Canadian steel exports to non-U.S. markets presents a downside.
Reports on Tuesday indicate that the U.S. and Canada halted trade talks on August 21. The U.S. promptly levied a 50% tariff on roughly 20 billion USD worth of Canadian goods, with Canada announcing retaliatory tariffs on U.S. products effective September 8.
President Donald Trump has also signaled his intent to impose a 50% tariff on Canadian automobiles, trucks, and auto parts starting January 1 next year. This would effectively double the current 25% tariff on Canadian vehicles.
Canada’s Auto Tariffs Double, Giving Competitors a Boost as Rivals Weaken
Among South Korean firms, Hyundai Motor Group appears well-positioned to capitalize on this situation.
Canada hosts production facilities for five major global automakers: Ford, General Motors, Honda, Stellantis, and Toyota. These companies produced over 1.31 million vehicles in Canada in 2024.
Canadian government data shows that in the same year, Canada exported 1,134,274 cars and light trucks to the U.S., valued at 46.4 billion CAD (approximately 33.46 billion USD). This represented 85% by volume and 93.2% by value of Canada’s global vehicle exports.
Higher U.S. tariffs on Canadian-made vehicles would inevitably erode these brands’ price competitiveness. Conversely, U.S.-produced vehicles, exempt from these tariffs, would gain a relative advantage.
Hyundai Motor Group’s expanded U.S. production is a strategic asset. With their U.S. manufacturing bases, Hyundai and Kia could secure a competitive edge against Canadian-made vehicles.
However, the intricate U.S.-Canada parts supply chain in the North American auto industry means that higher tariffs on Canadian parts could drive up U.S. vehicle production costs. This scenario creates a mixed outlook: potential sales opportunities coupled with increased parts procurement expenses.
Reuters has also highlighted that tariffs on Canadian parts could inflate U.S. automaker production costs and disrupt supply chains.
Steel: Opportunity or Oversupply?
The steel industry might find opportunities in the U.S. market if Canadian supply diminishes. However, the specter of global oversupply looms large.
Canada is a crucial steel supplier to the U.S. In 2024, Canada’s steel exports to the U.S. (HS 72) reached approximately 7.84 billion USD, dwarfing South Korea’s 1.76 billion USD. Including steel products (HS 73), Canada’s total exports to the U.S. hit 34.787 billion CAD (about 25.08 billion USD).
A 50% U.S. tariff on Canadian steel would significantly undermine its price competitiveness in the U.S. market, potentially creating openings for other countries’ products. This presents an opportunity for South Korean steelmakers.
However, rising import barriers in key markets like the U.S. and European Union (EU) pose challenges. The EU recently tightened its duty-free steel import quotas and hiked tariffs to 50% on over-quota imports. Consequently, South Korea’s July steel exports to the EU plummeted 41.2% year-on-year to 188 million USD.
Steel products shut out of U.S. and EU markets might flood into alternative markets like Association of Southeast Asian Nations (ASEAN). While South Korea must also seek new export destinations, competition could intensify if major producers like China and Japan target the same markets. POSCO Research Institute projects only a 1-2% growth in steel demand for the five main ASEAN countries this year.
Tariff War: A Potential North American Supply Chain Disruptor
South Korean companies with Canadian production bases are closely monitoring this conflict. A prolonged dispute could upend strategies relying on Canada as a North American supply chain hub.
For example, LG Energy Solution has established a battery production facility in Canada, while Solus Advanced Materials is constructing a battery foil plant targeting North American markets. Even if these companies’ products don’t face new tariffs directly, a protracted U.S.-Canada tariff dispute might necessitate a reassessment of Canada-based production strategies for the North American market.
This tariff war could impact not just specific product competitiveness but also reshape North American supply chain strategies. It’s evolving into a factor that could influence long-term investment decisions and production base locations, extending far beyond simple export cost considerations.
