Seoul: A Hyundai sedan that once undercut Toyota's Corolla by thousands of dollars in the US is now, courtesy of Washington, the pricier option. On Sept. 16, US tariffs on Japanese cars were cut to 15 percent, while Korean vehicles remain saddled with 25 percent.
According to Yonhap News Agency, what was once an advantage has turned into a brake on competitiveness. The flagship auto sector, long a pillar of South Korea's economy, now finds itself boxed in by geopolitics, domestic discord and new competitors. The numbers show how quickly a smooth ride can skid on a sudden policy turn. Since the US imposed a 25 percent tariff on Korean autos in April, exports have fallen for six consecutive months. August shipments dropped more than 15 percent year on year to just under $21 billion.
Analysts warn Hyundai and Kia face monthly tariff-related costs of 400 billion won ($289 million) and 300 billion won, respectively, if the situation persists. For suppliers, many of them small and thinly capitalized, the burden could prove even more punishing. Politics is no less fraught. Washington has linked tariff relief to Seoul's agreement on a $350 billion investment package - a figure recalling Japan's "blank check" commitment but one difficult for South Korea, which does not have the same reserve currency status, to swallow.
President Lee Jae Myung has rightly signaled he will not sacrifice long-term national interests for a short-term reprieve. Yet each month of delay deepens the pain, leaving Korean firms disadvantaged not only against Japan but also against European and Chinese rivals. If external pressure were the only challenge, the industry might at least rally in unison. Instead, politics and labor strife compound the problem. In the National Assembly, parties trade blame instead of aiding exporters. Within companies, unions demand higher bonuses and threaten strikes even as sales shrink. Kia's union has asked for 30 percent of operating profit as incentive pay; GM Korea's union is already staging walkouts. To foreign observers, this resembles an industry jamming its own brakes just as it approaches the steepest climb.
Meanwhile, competition is not standing still. Chinese automakers, squeezed out of the US by tariffs, are redirecting to Europe and Southeast Asia. In the first half of this year, Chinese car sales in Europe nearly doubled to 350,000 units, lifting market share from 2.7 to 5.1 percent. Hyundai and Kia, by contrast, saw their European sales slip 4 percent, with their share declining to 8.5 percent. Chinese firms are building plants in Hungary and Turkey, soon to enjoy tariff-free status on EVs. In short, even beyond America, South Korea risks losing its place in the fast lane.
To be clear, South Korea's overall auto exports still hit a record high in August, buoyed by surging demand in the EU and other parts of Europe. That resilience is real, but it risks being mistaken for immunity. When China sets its sights on the same markets, temporary gains may prove fleeting. What is to be done? First, the government must hold firm against unreasonable US demands but move with urgency to secure a deal that at least restores parity with Japan. Negotiating slowly but wisely is one thing; letting losses mount is another. Second, industry leaders must resist the temptation to hunker down on cost-cutting alone. Investment in next-generation vehicles is the only path to pricing power. Third, unions need to grasp that the survival of the industry is a precondition for their prosperity.
Tariff reversals can be temporary. Erosion of credibility and competitiveness is not. South Korea's carmakers have been here before, weathering crises by doubling down on quality and innovation. They may have to do so again - this time with rivals crowding ever closer in the rearview mirror.