On April 2, 2025, the U.S. government announced that it would impose tariffs of up to 25% on cars and light trucks imported from all countries. This sweeping move includes traditional economic allies like South Korea, Japan, and the European Union, with no exemptions granted.
While the U.S. justifies the move under the principle of “reciprocal tariffs,” many analysts view this as a strategic protectionist measure aimed at strengthening domestic manufacturing and restructuring global supply chains in favor of North America.
South Korea’s Automotive Industry Is Highly Exposed
South Korea’s auto industry is heavily export-dependent, with the U.S. as its largest overseas market. As of 2024, around 32% of Korea’s total vehicle exports went to the United States. Hyundai and Kia collectively sold approximately 1.47 million units in the U.S. last year, marking a record-high performance.
However, a significant portion of these vehicles are produced in Korea and shipped to the U.S.. With the new tariff in place, average vehicle prices could rise by $6,000 to $9,000. This price hike could significantly reduce competitiveness, especially in the price-sensitive U.S. mid-market segment.
EV Exports Hit Twice: Tariffs and Lost Subsidies
The tariff is particularly damaging to electric vehicle (EV) exports. Under the Inflation Reduction Act (IRA), the U.S. offers up to $7,500 in tax credits for EVs that are assembled in North America and meet specific battery material sourcing criteria.
Most Hyundai and Kia EVs—such as the IONIQ 5 and EV6—are still manufactured in Korea and currently do not meet IRA requirements. If the tariffs take effect on top of the lost subsidies, Korean EVs would face a double blow: higher sticker prices and no tax credit eligibility, putting them at a major disadvantage in the U.S. EV market.
Kia EV6: The Most “American” EV in Disguise
Despite these challenges, Korean automakers aren’t just exporting fully Korean-made vehicles. According to the U.S. National Highway Traffic Safety Administration (NHTSA), the Kia EV6 has the highest percentage of U.S.-sourced parts among all EVs, with more than 48% of its components made in the United States—surpassing many American brands.
Other models like the Hyundai Palisade, Santa Fe, and Kia Telluride also contain over 50% U.S.-sourced parts and are assembled in the U.S. This means Korean automakers are already deeply integrated into the American automotive supply chain and contribute to U.S. manufacturing and employment.
Experts warn that the tariffs could hurt U.S. suppliers just as much as Korean automakers. In essence, the policy risks disrupting supply chains that benefit both economies.
Hyundai's U.S. Strategy: Local Production and Vertical Integration
In response, Hyundai Motor Group has been accelerating its U.S. localization strategy. A new EV production facility in Georgia is set to begin manufacturing the IONIQ series in late 2025. Additionally, Hyundai has committed $5.8 billion to building a steel plant in Louisiana to strengthen vertical integration.
These investments go beyond simple assembly lines. Hyundai is establishing a North American-based production ecosystem—including batteries, raw materials, and steel. The group’s cumulative U.S. investment between 2023 and 2026 is projected to exceed $20 billion, on par with American legacy automakers.
Government Response: Limited Diplomatic Options
South Korea’s Ministry of Trade, Industry and Energy has expressed concern that the tariff may violate WTO rules, launching diplomatic efforts to negotiate exemptions. However, given the U.S. presidential election and rising protectionist sentiment, chances for a quick resolution appear slim.
In a similar case in 2018, Korea was able to avoid steel tariffs only by accepting a strict export quota. Analysts suggest that corporate adaptation may prove more effective than diplomatic routes in this politically driven environment.
Beyond Tariffs: The Start of a Global Automotive Shake-up
Analysts believe this is not just a trade dispute—it’s a signal of structural change in the auto industry. Automakers are now reevaluating global supply chains, localizing production, and adjusting EV strategies to align with new political and economic realities.
Hyundai and Kia are expanding operations in India, Southeast Asia, Mexico, and Eastern Europe. Their battery and semiconductor sourcing is also shifting toward North America. These moves reflect a broader trend of de-risking and diversification in response to growing geopolitical uncertainty.
Conclusion: Tariffs Are Real—Survival Requires Agility
The 2025 U.S. auto tariff is a real threat to Korean automakers. But with the right strategy, it could also be a catalyst for transformation. Hyundai and Kia are investing heavily in localization, building resilient supply chains, and increasing U.S. employment.
The rules have changed. In this new era of industrial policy and trade barriers, the fastest and most flexible players will win. For Korean automakers, the next chapter depends on how quickly they can adapt and lead.
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