U.S. President Donald Trump said he would reduce the tariff burden on British automobiles. Although it is known that all brands from all countries are subjected to a common tariff rate of 25% as part of item-specific tariffs, President Trump decided to make exceptions through negotiations with the United Kingdom. Domestic corporations such as Hyundai Motor and Kia find themselves in a situation where they will have to bear a high tariff burden for a considerable time, as the government that should negotiate with the Trump administration is failing to function properly.
President Trump held a press conference at the White House on 8th (local time) and noted that he had reached a comprehensive trade agreement with the United Kingdom. He announced that for cars produced in the United Kingdom entering the U.S., only a 10% basic tariff would be imposed on up to 100,000 units annually. Initially, British-made cars were subject to a combined tariff of 27.5%, including a 25% import tariff and a 2.5% most-favored-nation tariff.
Automobiles account for the largest share among the items exported from the United Kingdom to the United States. Premium brands such as Rolls-Royce, Jaguar Land Rover, and Bentley mainly export British cars to the U.S. Last year, exports of British-made cars to the U.S. were recorded at 101,000 units, most of which received tariff exemptions.
This decision corresponds to compensation for the United Kingdom's agreement to open its market to U.S. beef, agricultural products, and machinery. The United Kingdom also promised to purchase aircraft worth $10 billion (about 14 trillion won) from Boeing. In return, the U.S. agreed to abolish the 25% tariff previously applied to British steel and aluminum in addition to the automobile tariff.
Countries with significant automobile export rates to the U.S. are paying close attention to the news of the trade agreement between the U.S. and the United Kingdom. According to major Japanese media outlets such as Asahi Shimbun, Minister Yoshi Muto of Japan's Ministry of Economy, Trade and Industry held a press conference immediately after hearing the news of the trade agreement and said, “We will thoroughly investigate the details of the agreement and review if there are aspects worth considering in future negotiations with the U.S.”
Many analysts believe that domestic corporations are at a disadvantage compared to other countries that will negotiate with the U.S. in the future. Unlike other nations where the government and corporations are working as a team to prepare for negotiations, in South Korea, the government is currently barely functioning.
So far, trade negotiations with the Trump administration have been led by former Deputy Prime Minister and Minister of Economy and Finance, Sang-mok Choi. However, as impeachment proceedings against him were introduced in the National Assembly by the Democratic Party of Korea, he stepped down on the 2nd. Even former Prime Minister Han Duck-soo, who took over as acting president, has resigned, and currently, the operations of the government are being handled by Deputy Minister of Education Lee Joo-ho.
The Trump administration is engaging in negotiations based on strict reciprocity. To reduce the tariff burden on automobiles, critical decisions must be made, such as opening the U.S. market for other items or making substantial purchases of U.S. goods by investing a large budget.
The large surplus in South Korea's trade balance with the U.S. is also a disadvantage in negotiations. The United Kingdom recorded a deficit of $11.9 billion (about 17 trillion won) in trade with the U.S. last year. In contrast, South Korea's trade surplus with the U.S. last year reached $55.7 billion (about 78 trillion won).
In particular, automobiles have significantly contributed to the increasing trade surplus of South Korea with the U.S. Last year, the scale of automobile exports to the U.S. was $34.2 billion (about 48 trillion won), an 8% increase from the previous year, accounting for 27% of total exports. The proportion of automobiles in the overall trade surplus with the U.S. also recorded about 60%.
There are concerns in the automotive industry that South Korea will finish negotiations later than other major automobile-exporting countries. Even if the next president is decided in the presidential election on the 3rd of next month, it is anticipated that it will take considerable time to appoint Ministers of key economic ministries and assemble a trade negotiation team with the U.S.
An official from the automotive industry said, “Hyundai Motor and Kia have stated that they will not reflect tariffs on cars sold in the U.S. until early June, but afterwards, they will have no choice but to raise prices as inventory runs out,” adding, “The longer the timing of the U.S. negotiations is delayed, the greater the impact on performance will be.”