Can US-South Korea Trade Deal Revive Asian Automakers?

TradingKey - Asian automakers are reporting significant profit declines due to high U.S. tariffs on car imports, with Japan's Mitsubishi Motors and South Korea's Hyundai Motor Group being direct victims of these policies. 

Mitsubishi's Q2 net profit was nearly wiped out as a result of these tariffs and as competitors redirected exports to other markets, leaving the company in an "unprecedentedly challenging environment." Hyundai reported a 22% year-on-year drop in Q2 net profit, attributing $604 million in losses to the U.S. tariffs.

Seung Jo Lee, Executive Vice President and CFO of Hyundai, has expressed concerns that if tariffs continue, the impacts in Q3 and Q4 could be even more severe. The company is also considering adjusting its pricing strategy based on competitors’ moves in the U.S. market.

When Will a US-South Korea Trade Deal Be Reached? Is It Beneficial for the Auto Industry?

Currently, U.S. tariffs on Japanese cars have been reduced to 15%, easing concerns among Japanese exporters. Mitsubishi views the lower tariff rate as a "potential positive," yet the company has maintained its full-year forecast and increased vehicle prices in the U.S. by 2.1% last month.

In contrast, South Korea faces greater pressure as tariff negotiations remain incomplete. Korean auto exports are still subject to a 25% tariff imposed by Trump in April, prompting the government to seek tariff reductions similar to those granted to Japan.

According to a Yonhap News report on the 24th, the South Korean government plans to "learn" from Japan by using a $100 billion investment plan from Korean companies in the U.S. as leverage in tariff talks. The Maeil Business Newspaper suggests that without an agreement similar to Japan's, South Korea's competitiveness in the global auto market could be compromised.

However, the scheduled "2+2" economic and trade talks between South Korea and the U.S. on the 25th were canceled due to an unexpected change in plans by U.S. Treasury Secretary Besant. Some Korean media speculate this move is intended to pressure South Korea. Despite Korea's substantial investment pledges, its negotiating power may be weakened compared to Japan's $550 billion commitment. Whether a U.S.-South Korea tariff agreement will be reached soon remains an open question.

Furthermore, the potential benefits of such an agreement for the auto industry cannot be uniformly assumed. Drawing from the U.S.-Japan agreement, some analysts highlight the significant disparities in investment profit distribution and the lack of control Japanese companies have over investment flows. This raises questions about their continued interest in U.S. investments, especially if projects underperform, potentially affecting profitability and exposing Japan to systemic risks due to reliance on government-backed guarantees and loans. Similar challenges could arise if a U.S.-South Korea tariff agreement is implemented.