Trump Set to Pull out of Free Trade Agreement with Korea – Unfair for Autos, but Not a Disaster Scenario
President Trump threatens to raise pulling out of the Free Trade Agreement with Korea, KORUS, when he discusses the issue with his advisers next week. This follows complaints by Mr Trump earlier this year when he noted that American automakers struggle to sell cars in Korea, while Hyundai Motors and Kia Motors seem to be having an easy ride in the US.
In our view, there is little to complain about, if you look at the trade data and sales developments in detail: Both countries now offer free entry to their respective markets (since 2016), with zero import duties on passenger cars including SUVs and crossovers. The 25% US import duty on light trucks (pick-ups only) will be gradually reduced from 2019 to 2021, by when it also should come to zero. Neither Hyundai nor Kia currently builds pick-ups, although Hyundai plans to start manufacturing pick-ups in the USA. From 2011 to 2016, US auto exports (Ford, Fiat-Chrysler and GM groups combined) to South Korea increased by 122%, outperforming the Korean auto market, which saw a rise of only 15.6% during this period. However, over this same period, the Korean automakers’ (Hyundai and Kia) exports to the US increased by 20.7%, underperforming the US auto market, which rose by 37.3% (total Korean auto sales including US / Mexico built rose by 25.8%).
Considering these relative developments, KORUS has neither hurt the Americans nor benefited the Koreans. The issue for the Trump administration is that the absolute sales numbers differ hugely.
Key Points
- In 2016, Koreans bought 18,300 imported American cars, whereas Americans bought nearly 915,000 cars imported from Korea.
- American OEMS are struggling to increase sales to the level of their ‘free allowance’ of 25,000 units
- An import duty higher than 2.5% for Korean autos following a KORUS cancellation would be unlikely, in our view, unless this higher rate were to be imposed on all imports from all regions, including Europe and Japan.
- However, auto parts maker would face more of an issue: Import tariffs range between 2.5% and 5% for parts.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.