Euisun Chung, executive chairman of Hyundai Motor Group, speaks during the grand opening of the Hyundai plant in Ellabell, Ga., on March 26.Corey Perrine/The Associated Press
It was supposed to be a triumphant moment for Hyundai. On Wednesday, the South Korean automaker opened a new production base in the United States, part of a US$21-billion investment announced at the White House earlier this week.
Hyundai executives were hopeful the new Georgia plant, along with a steel factory in Louisiana and other investments, would enable the automaker to avoid U.S. tariffs and continue selling to one of its biggest markets.
U.S. President Donald Trump even touted the plan as a “clear demonstration that tariffs very strongly work.”
But hours after Hyundai broke ground in Georgia, executives were left – along with their counterparts at automakers around the world – watching their share price tumble on the news the U.S. would be imposing a 25-per-cent levy on all car imports from April 2.
Shares in Hyundai fell by 4.5 per cent in trading Thursday, while South Korean partner Kia was also down about 3.6 per cent. In Japan, shares in Toyota, which sold more than 2.3 million vehicles in the U.S. last year, were down about 2 per cent. Automobiles account for around 30 per cent of all Japanese exports to the U.S., and 7 per cent of the country’s total exports, according to Japan’s Nikkei newspaper.
According to The Korea Herald, the U.S. accounted for almost 50 per cent of all South Korean car exports last year – totalling US$34.74-billion – and more than 54 per cent of all Hyundai’s exports. Under the Korea-U.S. Free Trade Agreement (KORUS FTA), which came into force in 2012, Korean-made cars had been exempt from U.S. tariffs until now.
The language of Mr. Trump’s executive order, which covers passenger vehicles, light trucks and auto parts, will make it difficult for automakers even with a strong U.S. presence to avoid incurring penalties. Those automakers, like Hyundai, who have rushed to set up new U.S. factories in the face of Mr. Trump’s threats, will still take months to adjust supply chains so they avoid tariffs.
Speaking to industry leaders Thursday, acting South Korean President Han Duck-soo promised he would protect the country’s interests and provide “tailored support” to affected businesses.
South Korean politics remain in disarray since the impeachment of President Yoon Suk Yeol in December, after his unsuccessful attempt to declare martial law. Mr. Han was himself impeached by the opposition-dominated legislature soon afterward, but returned to office by the country’s Constitutional Court this week. Those same judges are expected to rule on Mr. Yoon’s fate imminently, and if they uphold his impeachment, an election must be held within 90 days.
The chaos has made it difficult for Seoul to respond to Mr. Trump’s threats, with Mr. Han not having spoke to the U.S. President since the latter’s January inauguration, a rare gap in communications between Washington and one of its closest Asian allies.
“Our economy is in difficulty as externally, there is growing uncertainty about the trade environment and technological competition from rival nations, while internally, the domestic political situation is unstable and sluggish domestic demand continues,” Mr. Han said Thursday, according to the Yonhap News Agency.
He vowed to draw on “all state and private sector networks” to try and lobby the White House for exemptions from the new levies.
In Japan, too, there was hope that Mr. Trump’s latest measures – which he described as “permanent” – would be reversed or paused, just as some tariffs against Canada and Mexico have been in recent months.
According to public broadcaster NHK, Prime Minister Shigeru Ishiba said all options were on the table in responding to Wednesday’s tariffs, including countermeasures, but that he was hopeful for some kind of deal.
“We need to think about what would best serve our country’s national interest,” he said. “We are strongly requesting Washington to get Japan exempted from its new levy of 25 per cent.”
Chinese Foreign Ministry spokesman Guo Jiakun condemned the new tariffs Thursday, saying they broke World Trade Organization rules and would undermine the global free trade system.
“There is no winner in a trade war or a tariff war,” Mr. Guo said. “No country’s development and prosperity can be achieved by imposing tariffs.”
Chinese and Hong Kong stocks performed relatively well Thursday, driven mainly by gains in the tech sector, including by Chinese electric vehicle companies, which were already subject to stringent U.S. levies, meaning they were less affected by Wednesday’s announcement.
In an interview, Nick Marro, lead for global trade at the Economist Intelligence Unit, said the latest tariffs would be “incredibly damaging to U.S. credibility.”
The tariffs “arguably violate” provisions under the United States–Mexico–Canada Agreement, as well as the KORUS FTA, and likely other legally binding U.S. trade frameworks, he said. “Unilateral tariff actions highlight how unreliable the U.S. is, which carries consequences for separate discussions around security and defence, at a time when the global geopolitical landscape is becoming much more uncertain.”
He said the disruption to North American supply chains would be huge, not only regarding cars reliant on production networks spanning the U.S., Mexico and Canada, but also those imported from Asia or reliant on auto parts from the region “which do not have obvious domestic replacements that can be quickly or easily used as alternatives.”
“There’s a high risk of a price shock that will carry consequences for U.S. consumption and investment, at a time when the U.S. economy already looks to be slowing down as a result of Trump’s chaotic trade and economic policies.”
With files from Alexandra Li in Beijing and Reuters
Shares in some of the world's largest auto companies tumbled on Thursday after President Donald Trump put a wall of tariffs around the U.S. vehicle sector, adding to worries about the hit to global trade and to industry profits. Ciara Lee reports.
Reuters