The specter of tariffs ranging from 10 to 20 percent on Korean vehicles, coupled with potential reciprocal measures, threatens to erode the economic gains secured under the Korea-U.S. Free Trade Agreement (KORUS FTA).
Automakers, fearing a steep decline in competitiveness, are accelerating plans to shift production overseas.
“The relocation of domestic manufacturing facilities will inevitably lead to job losses, potentially triggering a prolonged economic slowdown,” said Lee Cheol-in, an economics professor at Seoul National University.
Manufacturing accounts for 28 percent of South Korea’s gross domestic product - a significantly higher proportion than in other industrial economies, including Germany (20.4 percent) and the United States (11.1 percent). With the sector serving as a pillar of the South Korean economy, any disruption could have far-reaching consequences.
According to S&P Global, Hyundai Motor and Kia stand to see a 19 percent drop in operating profits if a 20 percent tariff is imposed.
In anticipation of these challenges, Hyundai Motor Group has announced plans to expand production at its Metaplant America facility in Georgia, increasing its U.S. manufacturing capacity to 1.2 million vehicles annually by 2025.
The shift is expected to diminish output at its Korean plants, which last year produced nearly one million vehicles for the U.S. market - representing more than half of the company’s total American sales.
“Even in a best-case scenario, we anticipate a reduction of 100,000 to 300,000 units in domestic production,” said Lee Hang-koo, former head of the Junbuk Institute of Automotive Convergence Technology.
“A decline of 100,000 units alone would necessitate the shutdown of one production line at Hyundai’s Ulsan plant for a year, impacting approximately 3,000 workers.”
The situation is even more precarious for GM Korea, where speculation of a complete withdrawal from the market has intensified. The automaker relies heavily on U.S. exports, which accounted for 83.8 percent of its total production last year, with more than 418,000 vehicles shipped overseas.
South Korea’s steel industry, already contending with China’s aggressive market dumping, faces additional pressure.
Hyundai Steel Company and POSCO are exploring overseas expansion, with Hyundai Steel considering a $7 billion investment in the southeastern U.S. to mitigate the effects of potential tariffs.
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