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The Peninsula

Exempt Korea from Possible Tariffs on Imported Motor Vehicles and Parts

Published March 22, 2019
Category: South Korea

By Phil Eskeland

Before boarding Marine One on the White House lawn on his way to Lima, Ohio, President Donald Trump once again dangled the possibility of imposing tariffs as high as 25 percent on imported motor vehicles and parts as a tool to pressure the European Union in trade talks.  His cajoling is made possible by an investigation conducted by the U.S. Department of Commerce into the national security implications of imported motor vehicles and parts, which is authorized under Section 232 of the Trade Expansion Act of 1962.  Commerce completed and submitted this report to the White House on February 17th, the absolute last day to do so under law, but the Trump Administration has yet to publicly release the study.  The President has 90 days (or until May 17th) to decide on imposing any tariffs in response to this report.

Historically, Section 232 reports have been made public before a final presidential decision was made, even in the recent case affecting steel and aluminum imports.  On January 11, 2018, the 232 report on steel was released and President Trump made his final decision on imposing 25 percent tariffs on steel about two months later on March 8, 2018.  It has now been over a month since the latest 232 report on imported autos was finalized, but the study has yet to be made public.

Based on President Trump’s response to the reporter’s question about the recommendations in the 232 report on imported autos, it appears that the President is using the possible threat of higher tariffs on imported autos and parts to motivate the European Union to quickly negotiate a “fair deal” with the United States on trade.  The President responded that “the European Union has been very tough on the United States for many years…as tough…as China…”  When the reporter asked if he was leaning towards tariffs, President Trump responded, “We’ll see whether or not they negotiate a deal.  If they negotiate a fair deal, that’s a different story.”  However, to negotiate a significant trade agreement with the EU in less than two months may not be realistic, particularly when much of the attention of current U.S. trade negotiators is focused on resolving long-standing trade issues with China.

As a result, the U.S. may be sleep-walking its way towards imposing higher tariffs on imported motor vehicles and parts based on alleged conclusions in a report that no one has seen and the affected industry opposes.  While most of the focus of the auto issue is on Europe, one cannot forget that South Korea is also a significant part of this global industry.  South Korea is the sixth largest producer of motor vehicles in the world and fifth largest importer of autos and parts into the United States.  In addition, Korean auto investment in the United States has grown during the past decade to more than $10 billion, supporting more than 110,000 direct and indirect jobs in the United States, including those employed at car dealerships.  There are now more than 94 Korean automotive parts manufacturing facilities across 12 U.S. states.

Korea should be provided an exemption from any proposed tariffs on imported motor vehicles and parts because:

  • Korea already made a variety of changes at the request of the U.S. in the area of automotive trade as part of the modifications to the Korea-U.S. Free Trade Agreement (KORUS FTA) to encourage more U.S. exports of motor vehicles and parts to Korea and to prevent Korea from exporting pick-up trucks to the United States.
  • Unlike the 10 percent tariff the EU currently imposes on imported cars from the United States, Korea eliminated its import duty on motor vehicles made in America three years ago as part of its obligation under KORUS.
  • The value of imported motor vehicles and parts from Korea has declined by 16 percent since 2015 while the value of U.S. exports of cars and parts to Korea has increased by 14 percent during that same time period, resulting in a 19 percent drop in the bilateral automotive trade deficit.
  • The cars that are being imported from Korea are concentrated in the sedan segment while major U.S.-based automakers are producing larger motor vehicles such as Sport Utility Vehicles (SUVs) and pick-up trucks.
  • Hyundai and Kia both estimated that a 25 percent tariff in imported autos and parts would increase production costs at their facilities by approximately 10 percent, which would almost certainly result in a significant reduction in the number of U.S. workers employed at their manufacturing plant and at their dealerships as the cost for their price-sensitive smaller cars would climb.
  • South Korea is a strong and steadfast ally of the United States, contributing 2.7 percent of its GDP to its own defense; paying nearly 50 percent of the cost of the deployment of U.S. forces on the Korean peninsula; purchasing over 80 percent of its imports of military hardware from the U.S.; and deploying its own forces overseas in support of the U.S. in other conflicts (Vietnam, Afghanistan, Iraq, etc.) that resulted in the loss of over 5,100 South Korean lives defending U.S. interests.

Simply stated, sedans made in Korea do not threaten the national security interests of the United States.  South Korea should be exempted from this trade fight between the U.S. and the European Union.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own. 

Graphic by Juni Kim, Program Manager at KEI. 

Photo from The White House photostream on flickr Creative Commons.

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