Trump’s Japan Trade Deal and South Korea’s Auto Industry: Navigating the Tariff Divide

The U.S. trade policies under the Trump administration reshaped global automotive markets, creating a complex landscape for exporters. While the 2021 Japan-U.S. trade deal established a 15% tariff on Japanese car imports, South Korea’s auto industry has faced a more turbulent path. As of August 2025, South Korea secured a reciprocal 15% tariff on auto exports through a July 2025 trade agreement, but lingering Section 232 tariffs and unresolved investment disputes have left its automakers in a precarious position. This analysis explores how these policies create a competitive disadvantage and strategic risks for South Korean auto exports.

The Tariff Landscape: A Relative Disadvantage

The Trump-era Section 232 tariffs, initially imposed in 2018, targeted steel and aluminum imports at 25% and later expanded to 50% for derivatives, disproportionately affecting South Korea. While the July 2025 trade deal reduced the automotive tariff from 25% to 15%—matching Japan’s rate—the 50% tariffs on South Korean steel and aluminum persist [1]. This creates a cost asymmetry: South Korean automakers face higher input costs for critical materials, eroding profit margins compared to Japanese competitors who avoided such penalties [2].

According to a report by S&P Global, the 50% tariffs on steel imports alone have reduced South Korean auto parts manufacturers’ export volumes by 12% year-to-date, compounding financial strain [3]. Meanwhile, Japan’s steel and aluminum exports to the U.S. remain largely unaffected, allowing its automakers to maintain cost efficiency.

Strategic Risks: Investment Delays and Market Uncertainty

The July 2025 trade deal also included a $350 billion investment package from South Korea into U.S. sectors like semiconductors and energy. However, disagreements over the structure of this investment have stalled full implementation of tariff reductions [4]. This uncertainty forces South Korean automakers to operate in a regulatory gray zone, where future policy shifts could reintroduce higher tariffs or impose additional conditions.

A CSIS analysis highlights that South Korea’s auto industry is particularly vulnerable to such delays, as the U.S. has simultaneously offered preferential terms to Japan and other partners [5]. For instance, Japan’s 15% tariff on autos is part of a broader bilateral agreement with no comparable steel/aluminum penalties, reinforcing its competitive edge.

Investment Implications for Stakeholders

For investors, South Korea’s auto sector presents a high-risk, high-reward scenario. While the 15% tariff on autos provides short-term relief, the unresolved steel/aluminum tariffs and investment negotiations create long-term volatility. According to Reuters, South Korea’s August 2025 auto exports fell short of forecasts, partly due to U.S. tariff pressures [6]. This trend could worsen if the investment package remains unratified, potentially triggering retaliatory measures from South Korea or further U.S. trade restrictions.

Conversely, companies that diversify supply chains or secure U.S. manufacturing partnerships may mitigate these risks. For example, Hyundai’s recent $2 billion investment in a U.S. EV battery plant could offset some tariff-related costs by reducing reliance on imported parts [7].

Conclusion

South Korea’s auto industry is navigating a tariff divide shaped by Trump-era policies and ongoing trade negotiations. While the 15% automotive tariff aligns it with Japan, the 50% steel/aluminum tariffs and unresolved investment disputes create a structural disadvantage. Investors must weigh these risks against potential opportunities in U.S. market access and domestic innovation. As the U.S. and South Korea finalize their trade terms, the auto sector’s resilience will hinge on its ability to adapt to a rapidly shifting regulatory environment.

Source:
[1] Reciprocal tariffs in focus: New adjustments to US trade [https://www.spglobal.com/automotive-insights/en/rapid-impact-analysis/reciprocal-tariffs-automotive-industry-update]
[2] South Korea August exports miss forecast as US tariffs weigh [https://www.reuters.com/world/china/south-korea-august-exports-miss-forecast-us-tariffs-weigh-2025-09-01/]
[3] South Korean steelmakers retain hopes of US trade deal [https://mepsinternational.com/gb/en/news/south-korean-steelmakers-retain-hopes-of-us-trade-deal]
[4] Latest Reciprocal Tariff News & Trade Deal Updates [https://www.bdo.com/insights/tax/major-new-trade-deals-for-reciprocal-tariffs-and-more-tariff-related-announcements]
[5] South Korea Gets Its Trade Deal with the United States [https://www.csis.org/analysis/south-korea-gets-its-trade-deal-united-states]
[6] South Korea expects impact on autos from Trump's Japan trade deal [https://www.reuters.com/business/autos-transportation/south-korea-expects-impact-autos-trumps-japan-trade-deal-2025-09-05/]
[7] Regional tariffs, trade deals, and what they mean for... [https://www.automotivelogistics.media/supply-chain/regional-tariffs-trade-deals-and-what-they-mean-for-automotive-logistics-and-supply-chains/650482]