“Starting April 2, a 25% tariff will be imposed on all imported vehicles and key components.”

This single statement from US President Donald Trump has triggered alarm bells throughout the Korean economy. With the current 2.5% import tariff suddenly jumping tenfold, significant shockwaves are expected not only through the domestic automotive industry but across related sectors.

Auto Industry Facing Export Decline Impact


According to analysis from IBK Industrial Bank Economic Research Institute, Korea’s automotive exports to the US are expected to decrease by 18.59% year-over-year following the tariff implementation. This means last year’s $34.7 billion in exports to the US would sharply decline to $28.3 billion.

The Hyundai Motor Group is particularly expected to take a major hit. Annual tariff burden is estimated to reach $8.4 billion, with average vehicle prices increasing by 13%. With approximately 700,000 vehicles falling under the tariff’s impact, Korea GM likewise expects its sales volume of 420,000 units to be directly affected.

The Korea Institute for Industrial Economics and Trade has offered an even more serious outlook. They suggest the tariff could cause Korea’s export share to the US market to drastically fall from the current 51.5% to around 30%. This represents more than just a numerical decline—it signals a fundamental structural change for Korea’s automotive industry.

Economic Growth Slowdown and Deindustrialization Concerns


The automotive industry represents 13.5% of Korea’s exports and is a core industrial sector. The Korea Development Institute (KDI) has already downgraded its economic growth forecast to reflect the tariff’s impact. Experts warn that short-term export losses of 2.6-5.9 trillion won are expected, which could lead to long-term weakening of Korea’s export-based economic growth model.

An even bigger problem is the change in industrial structure. Korean automotive companies, including Hyundai Motor Group, are likely to expand local production in the US or shift to third-country production bases in Mexico or Southeast Asia to avoid tariffs. Hyundai has already announced plans to increase local production through expansion of its electric vehicle plant in Georgia.

Kim Jun-kyu, a research fellow at the Korea Automotive Research Institute, expressed concern that “this tariff measure could weaken the domestic auto industry’s production base itself beyond short-term export declines. If domestic production decreases by 700,000-900,000 units annually, problems of industrial hollowing-out and technology leakage could become serious.”

Employment Crisis, Concerns of a Korean ‘Rust Belt’


The automotive industry employs approximately 380,000 workers, representing 10% of manufacturing sector employment. Production decreases will naturally lead to employment instability. In particular, decreased production by auto manufacturers could cause a chain reaction affecting parts suppliers.

Considering that 30-40% of auto parts companies are small and medium enterprises, there is a significant risk of sequential bankruptcies and increased unemployment. According to the Korea Labor Institute, production cuts by automakers could directly threaten 20,000-30,000 jobs, with total employment reductions estimated at 38,000 jobs when including parts suppliers.

Regions centered around the automotive industry, such as Ulsan and North Jeolla Province, are particularly likely to experience accelerated economic decline. Experts warn of a possible “Korean Rust Belt” phenomenon similar to the 2018 closure of GM’s Gunsan plant. At that time, Gunsan’s unemployment rate rose 2.5 percentage points, and the population decreased by 12% over five years.

Professor Kim Tae-young from Seoul National University’s Department of Economics analyzed that “one job in the automotive industry creates an effect of 2.8 jobs in related fields such as distribution and logistics. Therefore, this could lead to more than 100,000 job losses, creating a significant social shock.”

Expected Price Competitiveness Weakening and Market Share Decline


Due to the 25% tariff, Korean-made vehicles in the US market are expected to see price increases averaging 13-15%. This could lead to reduced price competitiveness compared to Japanese and German vehicles. Hyundai and Kia are expected to see annual operating profit decreases of 4.3 trillion won, representing losses of 1.9 trillion won and 2.4 trillion won respectively.

The KDB Industrial Bank Research Institute pointed out, “In the case of Hyundai and Kia, decreased operating profits could lead to reduced R&D investment, raising concerns about long-term technological competitiveness weakening.” In particular, with EU and Japanese companies having secured more local production infrastructure, Korean companies risk additional market share losses if their response speed is slow.

Industrial Structure Changes and Response Strategies


Amid the crisis, Korean automotive companies are exploring response strategies. First is expanding local production in the US. Hyundai Motor Group plans to increase its local production share to 60-70% by 2026 through expanding its electric vehicle plant in Georgia. While this entails domestic production decreases, it’s evaluated as a long-term tariff avoidance strategy.

Second is export market diversification. Proposals include reducing US market dependence from the current 49.1% to below 35% by targeting European and Southeast Asian markets. Considering EU exports accounted for only 22.3% in 2024, there is potential for growth.

Third is government-level diplomatic efforts. Lee Sam-no, a research fellow at the Korea Economic Research Institute, suggested, “Negotiating tariff exemption or deferral conditions through renegotiation of the Korea-US FTA is most urgent. Political lobbying should also be strengthened by appealing to local investment expansion and job creation effects.”

US Tariffs Affecting the Global Automotive Industry


The US tariff measures are expected to impact not only Korea but the global automotive industry as a whole. The European Union has already expressed “deep regret” and stated they will seek solutions through negotiation. The Japanese Prime Minister likewise mentioned that “all options are under consideration,” preparing for a response.

As the global automotive market contracts, companies’ profitability is expected to significantly deteriorate. US consumers will inevitably feel the burden of rising vehicle prices. This is expected to ultimately redraw the landscape of the automotive industry alongside global supply chain reorganization.

Turning Crisis into Opportunity: A Catalyst for Industrial Innovation


Some voices suggest viewing this tariff measure not as simply a crisis but as an opportunity for industrial innovation. They emphasize the need for expanded R&D investment in future vehicle fields such as electric and autonomous vehicles, and improving the technological competitiveness of small and medium parts suppliers.

Park Sung-jun, a research fellow at the Korea Institute for International Economic Policy, emphasized that “the US tariff shock can be an opportunity for Korea’s automotive industry to reexamine its global competitiveness. The industry must transform crisis into opportunity through technological innovation and value chain advancement beyond an export-dependent industrial structure.”

At the government level, urgent funding support and retraining programs for small and medium parts suppliers are critical. KDI has already recommended support policies for industrial structure transition.

Conclusion: Long-term Strategic Response Needed


The US 25% automotive tariff casts a dark cloud over the Korean economy. However, Korea’s automotive industry now faces a structural turning point for long-term survival beyond short-term shock. It’s time to recover competitiveness through technological innovation and global supply chain optimization while securing both price competitiveness and production flexibility.

To wisely overcome this crisis, a balanced approach is needed where the public and private sectors cooperate to establish systematic response strategies while simultaneously pursuing industrial structure reform and employment stability. Whether America’s tariff bomb can paradoxically become a catalyst for a new leap forward in Korea’s automotive industry depends on our wise response.