South Korean automakers grapple with US tariffs

Among industries in South Korea's diversified economy, the auto sector is the most exposed to the US market. We've highlighted major sectors' share of total South Korean exports to the US and the dependency level on the American market - i.e., the percentage of exports in that category headed stateside.

The automotive sector stands out as particularly vulnerable, accounting for 27% of total exports to the US; roughly 50% of the sector's total exports are reliant on US demand.

Auto parts, meanwhile, had also seen exports soaring in recent years; this category is included in the "other heavy industry products" bars in our chart, which is 15% dependent on the American market. Producers likely breathed a sigh of relief when Donald Trump suspended some duties on imported vehicle components this week.

Fortunately for this export-dependent nation, Korean automakers have diversified their production over the years. As our second chart shows, both Kia and Hyundai make about a tenth of their vehicles inside the US, while about 40% are made in non-Korean, non-US markets.

Our subsequent charts tour the rest of the South Korean economy in the current context, including more measures of exports and an assessment of GDP growth.

There is a wide divergence among different sectors. Early April figures are showing a 3.7% year-on-year increase for exports as a whole; growth was posted by wireless technology, shipbuilders and even the tariff-hit steel industry (South Korea is the fourth-largest US source for imported steel).

South Korea's important semiconductor industry also saw robust export growth -- a 17% pace year on year. As we wrote recently, early Korean trade figures seem to indicate a cyclical upturn for global chipmakers.

CEIC's granular data allows us to chart the surging price for DDR4 8Gb chips — a general-purpose DRAM widely used in PCs and electronic devices, and viewed as a benchmark for the memory chip market. Prices began climbing sharply ahead of Trump's "Liberation Day" tariff announcement last month; this spike has been widely interpreted as preemptive stockpiling by IT firms.

However, the export data also revealed fragility. Several computer-related categories saw exports decline sharply; the key auto sector, meanwhile saw exports slide by 3.8%. This data followed US protectionist measures that included a 10% baseline tariff (with an extra 25% tariff temporarily suspended) and a 25% tariff on automotive and steel imports. (Some auto-related duties were eased to reduce the compounded impact of overlapping tariffs.)

While Seoul stands a good chance of securing a trade agreement with Washington given the nations' security relationship, meaningful negotiations will likely have to wait until after the new government takes office following the June 3 election.

Overall, it appears that the uncertainty is holding back South Korea's economy, and our machine-learning nowcast model is predicting only a modest rebound. (Amid mounting economic pressures, the Bank of Korea is widely expected to consider a rate cut at its upcoming policy meeting on May 29.)

Preliminary GDP data showed that the economy unexpectedly contracted by 0.2% quarter-over-quarter in Q1. Measured on a year-on-year basis, it was also the first negative print since the fourth quarter of 2020. This downturn occurred even before tariffs took full effect, reflecting sluggish domestic demand (compounded by the nation's political uncertainty) as well as weaker exports. Our nowcast expects growth to return in Q2, reaching a 1.1% year-on-year pace. (That data is not expected until July 30.)