South Korea announces emergency measures for auto industry hit by US tariffs

South Korea on Wednesday announced emergency support measures for its auto sector, seeking to reduce the blow of US President Donald Trump's tariffs on a sector that has seen years of sharply rising exports to the United States.

The measures include financial support for the auto industry as well as tax cuts and subsidies to boost domestic demand, while the government also vowed efforts to negotiate with the US and help expand markets.

Trump has announced a 25 per cent tariff on imported cars and light trucks starting on Thursday. Manufacturers are expected to bear some of the tariff costs in the first year, but will eventually alter production and possibly cease importing certain low-volume models into the US market.

"Given the (lower) proportion of South Korean automakers' local production in the United States, our industry is comparably at a disadvantage," the government said in a statement.

The tariff was expected to cause "significant" damage to South Korean automakers and auto parts manufacturers, though it was difficult to come up with numerical estimates at the moment, the government said.

To help prevent any liquidity issues, the government will raise policy financing support for the auto industry to 15 trillion won ($10.18 billion) in 2025 from the 13 trillion won previously planned, according to the statement.

The government will lower taxes on automobile purchases to 3.5 per cent from the current 5 per cent until June 2025 and raise electric-vehicle subsidies to 30 per cent-80 per cent of price discounts from the current 20-40 per cent with the period extended by six months to the end of this year.

The government said it would also actively support automakers' efforts to expand export markets in the "Global South", which refers to less developed countries in Africa, Latin America and Asia, where demand is growing.

Regarding US tariffs, the government said: "We will do our best to ensure that the US does not treat South Korea in a disadvantageous way compared with other allies, through negotiations and by strengthening bilateral cooperation," without details.

The auto industry welcomed the support plan, but said further discussions were needed on more tax benefits to boost domestic demand. "There is a lot of concern in the auto industry about whether this alone will be enough," an industry official told Reuters, speaking on condition of anonymity because he was not permitted to speak to the media.

In 2024, South Korea's exports of automobiles to the United States stood at $34.7 billion (AED 126 billion), accounting for 49 per cent of its total auto exports.

Hyundai Motor said last week that it plans to keep sticker prices on its current model lineup steady for the next two months in an effort to ease customer concerns that the fallout from tariffs will impact dealer lots. The programme runs until June 2, and comes after the South Korean group's $21 billion (AED 77 billion) investment in the US announced last month.

Hyundai Motor's co-CEO Jose Munoz said there were no plans to raise prices in the United States, Hyundai's biggest revenue-generating market.

Analysts said that Trump may have a preference to propose aggressive tariffs in order to extract quick concessions in a negotiation, adding that auto tariffs will put upward pressure on input costs for vehicles in general. Relative to the combustion engine vehicle supply chain, the electric vehicle (EV) supply chain would likely suffer a bigger impact due to a dependence on China for EV parts.