US-Korea Auto Trade Surplus Hits Record High...Concerns Over Crackdown After Presidential Election

Korean Cars Drive Widening US Passenger Car Trade Deficit
US Protectionism Rises... Issues May Arise After Election

South Korea's trade surplus in automobiles with the United States recorded an all-time high for the period from January to May this year. While exports of domestically produced vehicles to the U.S. surged significantly, imports of American cars actually declined. Not only Hyundai Motor Company and Kia, but also models assigned by General Motors (GM) to its Korean plants sold well in the U.S., raising concerns that trade adjustment pressures may increase following the U.S. presidential election.

According to an analysis of statistics from the U.S. Department of Commerce's International Trade Administration (ITA) on the 29th, the U.S. trade deficit in passenger cars (surplus from Korea's perspective) for January to May this year was $63.5 billion. Vehicles such as passenger vans with more than 10 seats, cargo, and special-purpose vehicles were excluded. From the U.S. perspective, the country with the largest deficit was Mexico ($17.7 billion), followed by Japan ($16.3 billion) in second place, and South Korea ranked third with a $15.7 billion automobile trade deficit. The scale of the automobile deficit with South Korea during this period was the largest ever recorded.

The growing attention to the expansion of the U.S. automobile deficit is due to the increasing share held by South Korea. The U.S. automobile sector deficit rose annually by about $10 billion, from $42.3 billion in January-May 2022 to $51.9 billion last year, and $63.4 billion this year. The automobile deficit with South Korea has actually expanded since the revision of the Korea-U.S. Free Trade Agreement (FTA), surpassing $10 billion for the first time last year, up from $5.5 billion in 2019 for the January-May period.

Until just a few years ago, Japan, the world's largest automobile exporter, was the main culprit behind the U.S. automobile deficit, but now South Korea has caught up to a similar level. Before the COVID-19 outbreak in 2019, the U.S. automobile deficit with Japan was $16.8 billion, more than three times that with South Korea ($5.5 billion).

The U.S. automobile deficit is due to increased exports of Korean cars while imports remain stagnant. Hyundai Motor Company and Kia, South Korea's largest automakers, targeted the U.S. as a key market after their business in China weakened. Since the production capacity of their local plants in the U.S. could not meet demand, they exported finished vehicles made in Korea to the U.S. In the past one to two years, they have focused even more on increasing exports to the U.S. due to exchange rate effects.

Small sport utility vehicles (SUVs) produced by Korea GM also enjoy strong local demand, with a significant portion of production shipped to the U.S. The Trax and Trailblazer models produced by Korea GM rank first and fourth respectively in export volume by model. In the first half of this year, Hyundai exported the most vehicles to the U.S. with 340,501 units, followed by Korea GM with 226,311 units, and Kia with 212,665 units.

On the other hand, imports of American cars are decreasing. In the domestic imported car market, European brands, mainly from Germany, are preferred. Until the first half of last year, Tesla imported electric vehicles made at its North American plants to Korea, but it has since shifted its supply line to its Shanghai plant in China, which has not affected the import volume of American cars. Some European brands import models made in North American plants to Korea, but the volume is not large.

As the deficit grows, the possibility of unfair trade disputes arising after the U.S. presidential election has increased. Donald Trump, the Republican presidential candidate and former president, previously identified the automobile industry as a representative sector of unfair trade during his tenure. He argued that cheap foreign cars imported into the U.S. harmed domestic workers. The current ruling Democratic Party also has the United Auto Workers (UAW) as an ally, making it unlikely that they will passively watch the influx of foreign cars. There are also forecasts that moves to renegotiate the Korea-U.S. FTA may emerge again.

For this reason, the fact that the U.S. accounts for more than half of South Korea's total automobile exports and is considered the top foreign currency earner is not necessarily seen as an entirely positive sign. The timing coincides with the U.S. presidential election, which could give the impression that automobile trade between Korea and the U.S. is unbalanced.

Hyundai Motor Company has stated that it will respond by increasing production volume in the U.S. as needed. Hyundai plans to start operating the ‘Hyundai Motor Group Meta Plant America (HMGMA)’ under construction at its Georgia plant in the fourth quarter. The plant, originally dedicated to electric vehicles, has been modified to also produce hybrids, aiming to respond to policy or demand changes.

Insoo Pyo, an advisor at the law firm Bae, Kim & Lee LLC, said, "The U.S. has historically viewed automobile trade as a major cause of trade deficits and has treated it most sensitively in the Korea-U.S. FTA. There is a possibility that they will demand FTA renegotiations to tighten the relatively loose rules of origin."

This content was produced with the assistance of AI translation services.