Key Takeaways
- The U.S. has reduced tariffs on European cars to 15%, impacting South Korean automakers facing a higher tariff of 25%.
- Environmental groups in Korea urge for a 60% National Greenhouse Gas Reduction Target (NDC) by 2035, but current discussions don’t include this proposal.
- The Korean automobile industry is concerned about the industry’s future competitiveness amid new regulations and increased tariffs.
Recent developments for the Korean automobile industry have raised concerns as both Japan and the European Union (EU) have announced reductions in tariffs on exported cars to the U.S. Japan’s tariff dropped to 15%, and the EU confirmed a similar reduction. As of now, South Korea is the only major automaker facing a 25% tariff in the U.S. market, following a revision by the U.S. affecting tariffs on European cars and parts.
Prior to this change, South Korea enjoyed favorable conditions under a free trade agreement (FTA) with the U.S., allowing most vehicles to be exported without tariffs, except for pickup trucks. However, with the recent tariff changes, South Korean automakers, particularly Genesis, are likely to suffer as they compete in the premium segment dominated by brands like BMW and Mercedes-Benz. The Genesis GV80, for instance, has a competitive starting price of $58,200, which could rise if tariffs are passed to consumers.
Amid these international challenges, the upcoming deadline for Korea’s 2035 National Greenhouse Gas Reduction Target (NDC) is adding to the anxiety. The Ministry of Environment is currently engaging in public debate over four potential reduction targets: 48%, 53%, 61%, and 65%. Environmental groups are advocating for at least a 60% reduction target, which was echoed by former U.S. Vice President Al Gore in a letter to the Korean President. A recent survey indicated that 61.7% of the public supports this goal.
However, debate scenarios favored by environmental groups were reportedly not included in discussions by the NDC Expert Working Group. Analysts note that the recommended scenarios rely on external advice from the Intergovernmental Panel on Climate Change (IPCC), highlighting a disconnect with on-the-ground realities faced by the automotive industry.
Yoo Seung-hoon, a professor at Seoul National University of Science and Technology, warned that the disparity between proposed targets and industrial capacity could force automakers to scale down domestic production and increase overseas operations. As of the end of last year, Korea registered approximately 26.298 million vehicles, with 750,000 being electric. To meet even the lowest 48% target, the nation must significantly ramp up electric vehicle sales starting next year.
Lee Taek-sung, chairman of the Korea Automobile Manufacturers Association, emphasized the necessity for close collaboration between policymakers and the auto industry, pointing out that the current proposals do not align with industry capabilities. This disconnect may jeopardize the competitiveness of domestic automotive manufacturers as they navigate evolving regulations and market dynamics.
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