Even if Congress flips, the ‘15% tariff’ cannot be broken… Is the ‘real bill’ for K-automakers headed to domestic plants? - 경향신문
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Although Democrats captured both the House and the Senate in the U.S. midterm elections, analysts say tariff relief that the Korean auto industry hopes for is unlikely to materialize immediately. The key to the 15% tariff is held by the President, not Congress, and expanding production in the United States is a stance shared by both Democrats and Republicans. There is concern that industry burdens will not stop at tariffs but could spread to congressional oversight and pressure to localize.
House Democratic Leader Hakeem Jeffries of New York speaks at a news conference in Washington on the 4th local time. AP Yonhap News
Experts have been cautious about the results announced on the 3rd local time. The 15% tariff on Korean cars is based on Section 232 of the Trade Expansion Act, which allows the President to adjust imports on national security grounds and was imposed without a congressional vote. Even if Congress passes a law to limit this authority, a presidential veto would require two-thirds support in both the House and the Senate. Democratic seat counts fall short of that. Lee Si-uk, head of economic research at the Korea Chamber of Commerce and Industry, said, “Given that 67 votes are needed in the Senate to neutralize a presidential veto, limiting tariffs through legislation is effectively impossible.” Cho Seong-dae, head of trade research at the Korea International Trade Association, also predicted at a recent seminar, “Even if Democrats regain both chambers, the Trump administration's America First trade policy line carried out through executive orders is likely to continue.”
The tariff burden shows up directly in results. In its earnings release last month, Hyundai Motor estimated the impact of tariffs at about 4 trillion KRW last year and projected a similar level this year. Kia's third quarter operating margin was 5.8%, and it was estimated that without tariffs it would have been around 8%.
Restoring the electric vehicle purchase tax credit is also uncertain. The United States ended the credit of up to $7,500 (about 10.7 million KRW) at the end of last September. More than 160 Democratic House members support a restoration bill, but it would be hard to overcome a veto, and it is unclear whether Democratic leaders will prioritize bringing the credit back. Even if the credit is revived, cars built in Korea for export could be unlikely to benefit.
The force supporting Hyundai Motor and Kia sales in the United States has already shifted to hybrids. U.S. sales in October exceeded 160,000, the highest ever for October. Hybrids totaled 48,559, up 56.1% from a year earlier, about eight times the 5,946 battery electric vehicles.
Changes may first appear in congressional oversight and at the state government level. In a report released on the 5th, the law firm Yulchon said a Democratic-led Congress could request data on investment commitments and employment performance or summon companies. As U.S. tariff advantages are grounded in administrative measures, delays in executing investments could serve as grounds for pressure to readjust tariffs, it also analyzed. Hyundai Motor Group raised its U.S. investment plan last year from $21 billion to $26 billion (about 37 trillion KRW) and plans to expand local production capacity to 1.2 million units, which could put it under scrutiny.
On June 2, the first HMGMA-produced Kia Sportage Hybrid carrying Georgia Governor Brian Kemp and his wife was loaded onto a parking robot and brought onstage. Courtesy of Hyundai Motor
In Georgia, where the Hyundai Motor Group Metaplant is located, Democratic Senator Jon Ossoff won reelection, and in the governor election Democratic candidate Keisha Lance Bottoms also won. Because plant incentives and electricity rates are influenced by state policy, investment conditions could change.
The United StatesMexicoCanada Agreement (USMCA) is also a variable. In the joint review in July, the United States did not agree to extend USMCA in its current form. The agreement remains in place for now, but the three countries must conduct joint reviews annually until they agree to extend it. If rules of origin are tightened, cost burdens could rise at the Kia Mexico plant, whose first quarter exports to the United States increased 27.5% to 39,724 units.
The new Congress convenes on January 3 next year. Results of a Section 301 investigation into issues such as overcapacity have not yet been released, so trade uncertainty is expected to persist. Pressure to increase production in the United States is likely to continue even if the composition of Congress changes.
The issue is that localization of production is not necessarily a boon for the Korean auto industry. The more local production increases, the more export volumes from domestic plants to the United States can decline. Parts suppliers could face a double burden of investment costs in the United States and reduced domestic volumes. Record U.S. sales are not the same as a report card for domestic production and employment. An industry official said, “If demands for local production grow while tariff burdens remain unchanged, the biggest concern will be how to protect volumes at domestic plants,” adding, “Small and midsize parts suppliers that find it hard to follow assemblers to the United States could be hit first.”
