South Korea faces potential challenges in maintaining its automotive competitiveness in the US market as tariff reduction negotiations with the United States encounter delays.

Follow-up negotiations on the South Korea-US tariff agreement have stalled, resulting in an expected delay in the reduction of tariffs on automobiles and parts exported to the United States.

Meanwhile, Japan's tariffs on automobiles and parts are scheduled to decrease to 15% from 16 September, potentially making Japanese vehicles more price-competitive than South Korean vehicles in the US market.

According to foreign media reports on 15 September, the Japanese government and industry expect tariffs on Japanese automobiles and parts exported to the US to be reduced from the current 27.5% (2.5% basic tariff plus 25% item-specific tariff) to 15% starting 16th September.

The two countries reached a trade agreement in late July, which included reciprocal tariff reductions and a 15% tariff on automobiles and parts, in exchange for Japan establishing a US$ 550 billion investment fund in the US. The Trump administration applied 15% reciprocal tariffs from 7th August but delayed the implementation of the automobile and parts tariff reduction, another component of the agreement.

Following the signing of a memorandum of understanding with Japan to invest US$ 550 billion in sectors including semiconductors, energy, artificial intelligence, and key minerals, the US administration issued an executive order on 4th September to reduce item-specific tariffs on Japanese automobiles and parts to 15%. The order was published in the Federal Register on 9 September.

The executive order specifies that "within seven days of this order being published in the Federal Register, the US Department of Commerce must separately publish revised tariff classifications in the Federal Register."

In line with this, Japan's tariff negotiation representative, Economic Revitalisation Minister Ryosei Akazawa, confirmed that the reduction of automobile and parts tariffs would take effect from 16th September.

If the US implements a 15% tariff on Japanese vehicles, South Korea's automotive industry is expected to be directly affected.

Prior to April 2025, South Korean vehicles benefited from tariff-free treatment under the South Korea-US Free Trade Agreement, providing higher price competitiveness compared to Japanese and European vehicles, which were subject to a 2.5% basic tariff.

Following the Trump administration's policy in April 2025 to impose a 25% tariff on all imported vehicles, Hyundai Motor and Kia recorded reduced operating profits.

If Japanese tariffs are reduced to 15% while South Korea's remain at 25%, South Korean vehicles could lose price competitiveness relative to Japanese vehicles.

The Hyundai Avante, for example, would become more expensive than the Toyota Corolla in the US market once tariffs are applied. Maintaining current prices under these conditions would continue to affect operating profits.

The industry initially expected automobile tariffs to be formally reduced within approximately two months, based on the precedent of the UK, which reached a trade agreement with the US in May.

Since Japan concluded its trade negotiations on 22nd July, the scheduled implementation on 16 September follows a similar timeframe.

A significant challenge for the South Korean government is the limited capacity to prioritise the reduction of automobile and parts tariffs. Reports indicate that the US is seeking a comparable "investment in the US worth US$ 350 billion," as with Japan, raising concerns regarding the feasibility of committing to such substantial investments within the remaining period of President Trump's term solely to facilitate automobile exports.

Following the dispatch of Minister of Trade, Industry and Energy Kim Jung-kwan, South Korea continues follow-up negotiations, with Trade Minister Yeo Han-koo sent to the US on 15th September to advance discussions.