South Korea Auto Shares Drop on U.S. Trade Deal Fallout

Seoul () - Shares of South Korean car manufacturers Hyundai Motor and Kia Corporation declined on Thursday following statements from U.S. President Donald Trump indicating that the U.S. would impose a 15% tax on imports from South Korea, covering vehicles, as part of a trade agreement.

Although the agreement lowers car tariffs from 25%, it eliminates the 2.5 percent tariff benefit that South Korean automobile manufacturers previously received compared to their Japanese counterparts through the U.S.-South Korea Free Trade Agreement.

Certain experts suggested that the decline in stock prices could be due to investors selling off their holdings after realizing profits, since the tariff information had already influenced market movements. This came after shares of South Korean car manufacturers increased significantly last week when it was announced that Trump had agreed to lower Japanese automobile imports to 15 percent, which generated hope for a comparable agreement involving Seoul.

The automobile association of South Korea described the reduction in tariffs as "favorable," stating that it eliminates ambiguity and establishes an equal competitive environment against Japanese and European competitors.

Hyundai Motor stated that the agreement "confirms our strong belief in the U.S. market and our dedication to American production."

In March, Hyundai Motor Group revealed a $21 billion commitment to the U.S., during Trump's presidency, which involves a $5.8 billion steel plant as well as an enhancement of Hyundai Motor's emerging vehicle facility in Georgia.

Prior to Washington implementing 25% automobile taxes in April, there were no duties on the majority of South Korean vehicle imports due to a mutual trade agreement, whereas a 2.5% tax applied to Japanese car imports.

South Korean representatives requested an automobile tariff of 12.5 percent, whereas President Trump aimed for a rate of 15 percent, according to the official residence.

"A non-tariff surcharge for South Korean car manufacturers has disappeared," stated Shin Yoon-chul, an analyst with Kiwoom Securities.

However, James Hong, who leads mobility research at Macquarie, stated that the difference is "manageable," considering the brand worth and increased sales of premium cars from South Korean manufacturers.

South Korean car manufacturers are in a stronger position compared to their American counterparts, who have been charged as much as 25% on cars coming in from Mexico, according to Ester Yim, an analyst with Samsung Securities.

Hyundai Motor stocks closed with a decline of 4.5%, while Kia Corporation's shares dropped by 7.3%.

(Covered by Hyunjoo Jin from Seoul and Daniel Leussink from Tokyo along with Heekyong Yang from Seoul; edited by Anne Marie Roantree and Michael Perry)