US to raise tariffs on South Korea, EU and India announce deal
US president Donald Trump has threatened to increase tariffs on South Korea to 25%, with the increase applying to existing tariffs on all goods under the ‘reciprocal’ tariffs announced on ‘Liberation Day’ as well as tariffs on cars.
Trump said the additional tariffs are going to be applied because South Korea “is not living up to its deal” with the US. The deal, initially agreed upon in July last year, proposed tariffs of 15% for vehicle imports and automotive parts imports to the US, down from an earlier threatened 25%, while South Korea committed to a $350 billion investment in the US, with a share of $200bn allocated for semiconductors and nuclear energy, and $150bn going towards shipbuilding in the US.
The impact on South Korean OEMs
Trump’s U-turn on the deal could remove the potential advantage that South Korean OEMs had hoped to take advantage of. Carmakers including Hyundai, Kia and Genesis could have been more cost-competitive under the 15% tariff, but now they are being hit not only with higher tariffs in the US, but also in Mexico.
At the beginning of January, the Mexican Senate announced a package of tariffs affecting the import of goods from countries with which Mexico does not have a Free Trade Agreement, one of which is Mexico. Among the goods subject to the new duties imposed by Mexico are passenger cars (up to 50% tariffs), auto parts (15-35%) and raw materials (35%) used in vehicle production. Mexico imported 6.3% of all vehicle body parts and accessories in 2024 from South Korea, totalling a value of $406m.
It’s uncertain what the impact will be on investments in production in South Korea. With a scrapped deal and the loss of an additional competitive advantage through lower tariff rates, OEMs may rethink supply chain strategies. In November, just one month after Trump’s state visit to South Korea to sign a memorandum of understanding (MoU) for closer collaboration, Hyundai committed to investing ₩125.2 trillion ($85.7bn) over the next five years in AI, robotics and advanced manufacturing in South Korea. The carmaker said at the time that it plans to “diversify export destinations for vehicles produced at domestic plants and significantly expand exports by developing Korea’s EV-dedicated facilities into global export bases”. It said it aimed to export 2.47 million units annually by 2030, having exported a total of 2.18 million units in 2024.
What increased tariffs on South Korea means for automotive globally
Other countries that have made similar deals with Trump, including the EU and Japan, which would see tariffs reduced to 15%. Now, those countries will be wondering whether the deals will fall through. Many of these deals are only agreements or frameworks, and are not actually signed and ratified.
The EU’s trade deal with the US that was agreed upon last year, which would see the EU drop tariffs to 0% and the US drop tariffs from 27.5% to 15%, has not been legally approved yet, having previously been put on hold. The European parliament is due to vote on the deal in the next two months, but government officials in Europe are looking to put the deal on hold again, following Trump’s threat of a further 10% tariff on goods imported from the UK, Denmark, Finland, France, Germany, the Netherlands, Norway and Sweden from February 1, rising to 25% in June, if the countries continued to oppose the US takeover of Greenland. He has since backed off this threat.
EU and India announce trade deal
At the same time, the EU and India have announced a trade deal to strengthen their relationship amid tensions with the US. The free trade deal would cut tariffs on vehicles from as high as 110% to 10%, with a ceiling of 250,000 vehicles. According to Bloomberg, this quote is six times larger than the 37,000-unit ceiling that India granted to the UK last year.
The formal signing of the deal is likely to take place later this year following approval by the European Parliament and European Council.
