U.S. Expands '25% Tariff' on Auto Parts… Korean Companies Also Affected

Following engines, transmissions, and electronic components

Department of Commerce reviewing additional parts

"Supply chains may be lost to U.S. competitors"

The U.S. Department of Commerce is expanding the categories of automobile parts subject to a 25% tariff. Not only domestic auto parts manufacturers that export to the United States, but also finished car companies like Hyundai Motor Company and Kia Corporation, which assemble cars in the U.S. using imported parts, now fall under the impact of the tariffs.

On the 24th, the International Trade Administration (ITA) under the Department of Commerce announced that, pursuant to Section 232 of the Trade Expansion Act, it has prepared procedures to add new items to the list of automotive parts subject to the 25% tariff when imported into the United States. This is a follow-up to President Donald Trump's proclamation on March 26, which laid out plans to impose a 25% tariff on automobiles and parts and directed the Department of Commerce to establish an institutional procedure to expand the types of parts subject to tariffs. An additional 25% tariff has been imposed since May 3 on engines, transmissions, powertrain components, and electronic parts, and other parts are now being added to this list.

Accordingly, U.S. automobile parts manufacturers will be able to submit opinions on imposing tariffs on specific parts starting July 1. The Department of Commerce will regularly accept industry requests four times a year—in January, April, July, and October—for two weeks each time. If a U.S. manufacturer or related association requests tariffs on certain parts, the Department of Commerce must decide within 60 days of the request whether to impose them, including a 14-day period for public comment.

If the number of tariffed items expands, the difficulties for domestic companies are expected to increase. Korean automobile parts exports to the U.S. were worth $13.5 billion (about ₩19 trillion) last year, making the U.S. the largest export market for Korean auto parts. The proportion of Korean automobile parts exported to the U.S. rose from 29.5% in 2020 to 36.5% last year.

Over 60% of Korean firms exporting auto parts to the U.S. are already burdened by tariffs. According to a survey released by the Korea Automobile Manufacturers Association (KAMA) on the 24th, 37% of domestic corporations (multiple responses allowed) reported that they pay the tariffs directly, while 29.3% said their U.S. local subsidiaries make the payments.

As a result, auto parts exports are expected to decrease from the second half of the year. The Korea International Trade Association (KITA) reported that Korean auto parts exports shrank by 6.1% year-on-year between January and May due to the impact of U.S. tariffs and predicted a further 6.5% drop in the second half. An official from a Korean auto parts firm said, "We are on high alert to see what new parts will be added," adding, "Parts included in the list will likely face reduced margins or risk losing customers to other domestic suppliers in the U.S."

Lim Dayeon/Shin Jeong-eun reporters allopen@hankyung.com