Just over 100 days after Korea and the U.S. agreed on a $350 billion investment package, the specifics of its implementation have been settled, dissipating the uncertainty surrounding U.S. tariffs on export companies. The automotive industry, in particular, which had been bearing higher tariffs compared to key competitors due to delayed negotiations, expressed relief.

Kim Yong-beom, policy chief at the Presidential Office, held a briefing at the APEC International Media Center in Gyeongju, North Gyeongsang Province, on Oct. 29, stating, “With the conclusion of negotiations, reciprocal tariffs will remain at 15%, and tariffs on automobiles and parts will also be reduced to 15%.”

Previously, the White House announced an executive order on July 30 to reduce reciprocal tariffs applied to Korea from 25% to 15% following the Korea-U.S. tariff agreement. However, no follow-up measures were taken regarding item-specific tariffs on automobiles and auto parts. In contrast, Japan saw its automobile and auto parts tariffs reduced to 15% after signing a memorandum of understanding (MOU) on the implementation of a $550 billion investment package, while the European Union (EU) initiated legislative procedures to eliminate tariffs on U.S. industrial products. This meant that while key competitors like Japanese and German companies were subject to a 15% tariff in the U.S., which is the largest automobile export market, Korean companies were burdened with a 25% tariff.

The tariff costs borne by the Korean automotive industry in the second quarter of this year amounted to 1.6 trillion won. There were concerns in the industry that this cost could balloon to 2.5 trillion won in the third quarter. NICE Credit Rating had analyzed that if the 25% tariff were to be maintained until the end of the year, the annual burden for Hyundai Motor and Kia would reach 8.4 trillion won. This was significantly higher compared to Japan’s Toyota at 6.2 trillion won and Germany’s Volkswagen at 4.6 trillion won. However, with the conclusion of the tariff negotiation, the burden on the Korean automotive industry is expected to decrease substantially. NICE Credit Rating projected that if Korea’s automobile tariff is reduced to 15%, the burden on Hyundai Motor and Kia would decrease to 5.3 trillion won annually, about 3.1 trillion won less than if the 25% tariff had been maintained.

In response, the automotive industry welcomed the news of the negotiation’s conclusion. Hyundai Motor Group stated, “We are grateful to the government for their dedicated efforts through the difficult negotiation process. Hyundai Motor and Kia will continue to pursue various measures to minimize the impact of tariffs.” They added, “At the same time, we will further strengthen our fundamentals through quality and brand competitiveness enhancement and technological innovation.”

Some analysts noted that Korea will no longer enjoy the 2.5 percentage point tariff advantage over other countries that it had through the Korea-U.S. Free Trade Agreement (FTA). Before President Trump’s tariff bomb, Korea’s U.S. automobile tariff was 0% while Japan and Germany’s was 2.5%. Now, the starting line is the same. Prof. Heo Yoon of Sogang University’s Graduate School of International Studies said, “Looking at the big picture, we’ve maintained our tariffs to the U.S., while the U.S. has only raised theirs to 15%. While it’s regrettable that the automobile tariff advantage has disappeared, we have no choice but to move beyond the FTA era.”

The reduction in automobile tariffs is expected to take effect as early as Nov. 1. Following the method applied to the EU, it was agreed that tariffs would be retroactively reduced from the first day of the month when Korea initiates legal procedures to implement the negotiation contents. Poilicy Chief Kim explained, “Special legislation is needed to establish funds related to U.S. investments. Once we propose the bill and inform the U.S., they will reduce the tariffs.” To minimize tariff damage to companies, the government plans to finalize the related bill proposal within the next month.

Meanwhile, Korea and the U.S. agreed to apply most favored nation treatment to pharmaceuticals and wood products. Zero tariffs will be applied to aircraft parts, generic drugs, and natural resources not produced in the U.S.

For steel and aluminum products not mentioned in the bilateral agreement, the existing 50% item-specific tariff will continue to apply. The U.S. did not touch on item-specific tariffs for steel and aluminum products in its negotiations with Japan and the EU either. An industry insider pointed out, “While we haven’t become disadvantaged compared to export competitors, the tariff burden remains substantial. There are concerns about potential damage to small and medium-sized enterprises as the U.S. tends to expand the range of derivative products subject to steel and aluminum tariffs.”