The automobiles made in the Republic of Korea (south) could be hard hit if the United States decides to impose 25 percent tariffs on foreign vehicles and auto parts under its Trade Expansion Act, the Institute for International Trade (IIT) in Seoul predicted recently.
According to a report of the IIT, auto exports from Asia's fourth-largest economy could plunge 22.7 percent if Section 232 goes into force. The section is a rarely used tool that can permit U.S. policymakers to erect emergency barriers on "national security" grounds.
The drop is greater than the 21.5 percent decrease forecast for cars made in Japan and the 21.3 percent decline expected for vehicles assembled in China. Sales of German cars could fall 21 percent if Washington imposes the sanctions.
It added that if new tariffs are 100 percent transferred to the consumer price of foreign-made cars sold in the key North American country, the main beneficiaries will be U.S. carmakers.
"If import vehicles' prices go up just 1 percent, this will translate into a 1.77 percent rise in sales for cars made in the United States," IIT predicted.
The forecast, however, said that because Japan exports more cars to the United States than South Korea, that country's outbound shipments will fall by some 420,000 vis-a-vis 160,000 for local carmakers like Hyundai Motor Co. and Kia Motors Corp.
German carmakers may see their exports backtrack by around 150,000 units.
In 2017, Japan exported 1.96 million cars to the United States, while South Korea shipped out 720,000, with numbers from Germany standing at 710,000 vehicles.
The think tanks under the Korea International Trade Association (KITA) said that if the tariffs are imposed, the consumer price for South Korean cars will spike some 23.9 percent, exceeding those of its rivals.
The reason for the increase is that South Korean cars sold in the U.S. have an average operating profit of 4.3 percent, the lowest among countries that ship vehicles in the country.
It said the average price of Japanese cars will move up 23.3 percent, with numbers for German vehicles rising 22.9 percent. The corresponding figure for Chinese cars is estimated at 23.1 percent.
The latest report then said that the value of locally made cars and parts exported to the U.S. last year reached US$24 billion, accounting for 33.7 percent of all shipments to the country. This was equal to 1.6 percent of the gross domestic product.
It said that if tariffs are imposed, South Korea could face challenges in terms of production and the job market.
"At this juncture, it is imperative for South Korea to make certain it does not get slapped with higher tariffs by pointing out that we pose no security threats," an IIT researcher said.
He added that local carmakers need to diversify export markets and strengthen their overall competitiveness.
Besides hurting exports, the latest findings said that American consumers will experience an 11.1 percent increase in vehicle prices.
At present the average price of a car sold in the country stands at $27,321, but this could rise to $30,346, it said.