🚨 US Car Quota System Introduction: Challenges and Opportunities for Korean Auto Industry
Today Korean Economic News | 2025.05.10
📌 US Introduces Quota System Instead of Lowering Car Tariffs... How Will This Affect Korean Auto Industry?
💬 The United States has introduced a quota system limiting export volumes instead of lowering car tariffs in its trade negotiations with the UK. Currently, the US imposes high tariffs of 25% on Korean cars since the Trump administration took office. This recent case of negotiations with the UK suggests similar conditions may apply to Korea. The auto industry emphasizes that "at least 1 million cars must be secured as quota for smooth exports," and the government is also preparing measures to protect the auto industry in trade negotiations with the US.
1️⃣ Easy Understanding
The United States has introduced a policy that limits export volumes instead of lowering car tariffs in its trade negotiations with the UK. Let's look at how this will affect the Korean auto industry.
In recent trade negotiations with the UK, the US has dramatically reduced car tariffs from 25% to 2.5%, but introduced a 'quota system' that limits the number of vehicles that can be exported annually. The UK has been allocated a quota allowing exports of about 800,000 cars to the US annually, showing that US protectionist policy is evolving into a new form.
Korea currently exports about 600,000 cars annually to the US, and Hyundai-Kia also produces about 1.5 million cars per year in US factories. The 25% high tariff imposed by the Trump administration has greatly weakened the price competitiveness of Korean cars, leading to decreased exports.
The auto industry is concerned that "while lower tariffs are positive, if the quota volume is not sufficient, it could cause even greater damage." In particular, Hyundai-Kia had planned to expand exports to increase their market share in the US market, but if a quota system is introduced, these plans could be disrupted.
The government aims to secure a quota of at least 1 million cars in trade negotiations with the US and plans to request a separate quota allocation for eco-friendly vehicles such as electric and hydrogen cars. It is also preparing a strategy to increase negotiating power to protect the auto industry through cooperation in other areas where Korea has strengths, such as IT technology and semiconductors.
As US protectionist policies change from tariffs to quotas, the Korean auto industry faces new challenges. This is a time when countermeasures such as securing sufficient quotas, expanding local production, and diversifying export markets are needed.
2️⃣ Economic Terms
📕 Quota System
A quota system is a non-tariff trade barrier that limits the quantity of goods that can be imported from a specific country.
- It is used as a policy to protect domestic industries by setting upper limits on import volumes or amounts.
- For imports exceeding the quota, high tariffs may be imposed or imports may be prohibited altogether.
📕 Protectionism
Protectionism is a policy that imposes tariffs or non-tariff barriers on imported goods to protect domestic industries.
- It appears in various forms such as tariff impositions, import quotas, and technical regulations.
- While it has short-term effects of protecting domestic industries, in the long term it can lead to reduced global trade and economic growth slowdown.
📕 Tariff
A tariff is a tax imposed on imported goods, aimed at protecting domestic industries and securing fiscal revenue.
- There are ad valorem tariffs (imposed as a percentage of the product price) and specific tariffs (imposed as a fixed amount according to quantity).
- Under the WTO system, tariffs had been gradually decreasing, but recently some countries are raising tariffs again as protectionism strengthens.
📕 Trade Negotiations
Trade negotiations are dialogue and consultation processes to determine trade conditions between countries.
- Various trade issues such as tariff rates, import quotas, non-tariff barriers, and intellectual property protection are discussed.
- They take the form of bilateral negotiations (such as FTAs) and multilateral negotiations (such as WTO).
3️⃣ Principles and Economic Outlook
💡 Background of US Quota System Introduction and Global Impact
Let's look at the background and impact of the US shifting policy from tariffs to a quota system.
First, the quota system is a compromise between protecting the US auto industry and improving trade relations. The Trump administration imposed high tariffs of 25% on imported cars as part of its "America First" policy. However, this policy led to price increases and increased consumer burden, raising domestic criticism. The quota system can be seen as a compromise that reduces consumer burden by lowering tariffs while still protecting domestic industries by limiting import volumes. This negotiation with the UK is expected to set a precedent for negotiations with other car exporting countries such as the European Union, Japan, and Korea.
Second, the quota system will act as a new variable in the global automotive industry supply chain. Competition is expected to intensify within limited quotas, which could trigger changes in automakers' strategies. There may be an acceleration in reorganizing export strategies around high-profit models such as luxury cars and electric vehicles, or in expanding local production. If the introduction of quota systems spreads, it could lead to relocation of global car production bases and changes in investment strategies. In particular, competition between countries and companies for quota volume allocation is expected to intensify.
Third, the quota system may act as a new challenge to free trade principles. Under the WTO system, tariffs had been gradually decreasing, but non-tariff barriers such as quotas are showing signs of strengthening. This protectionist trend is a challenge to the free trade system and could bring about a reorganization of the global trade order. Especially if major economies such as the US, China, and the EU strengthen trade barriers for their own interests, the global economy may see intensified "blockization" trends. This could hinder the efficiency of global supply chains and slow economic growth.
The introduction of the US quota system is an important turning point that could bring fundamental changes to the global automotive industry and trade order beyond a simple change in trade policy. Governments and companies in each country need to respond proactively to these changes and make efforts to strengthen the competitiveness of their domestic industries and seek new opportunities.
💡 Impact on Korean Auto Industry and Response Strategies
Let's look at the impact of the US quota system introduction on the Korean auto industry and effective response strategies.
First, the quota system will be a new challenge factor for Korean car exports. Korea currently exports about 600,000 cars annually to the US, and Hyundai-Kia had been planning to expand exports for continued growth. If a quota system is introduced, these growth strategies could be constrained. There are concerns about disruptions to plans that aimed for first-mover effects in future mobility markets such as electric and hydrogen cars. Moreover, if quota volumes are excessively limited, it may become difficult to maintain current export volumes. The auto industry accounts for about 15% of Korea's exports as a major industry, so changes in US market conditions can have a significant impact on the domestic economy.
Second, multifaceted strategies are needed for effective response. First, at the government level, it is important to secure sufficient quota volumes in trade negotiations with the US. The industry argues that a quota of at least 1 million cars is needed, and it is also necessary to request separate quota allocations for eco-friendly vehicles such as electric and hydrogen cars. Also, at the corporate level, the strategy of expanding the proportion of local production in the US has become more important. Hyundai-Kia is already building an electric vehicle factory in Georgia and plans to increase local production capacity through additional investment. Along with this, efforts to diversify export markets to reduce dependence on the US market should be pursued simultaneously. In particular, it is necessary to strengthen investment and marketing in markets with high growth potential such as India, Southeast Asia, and Latin America.
Third, a strategic approach is needed to turn crisis into opportunity. Under a quota system, it becomes important to maximize profits with limited volumes. Therefore, it is necessary to reorganize export strategies around high-value-added models. Strategies can be adjusted to strengthen the attack on the US market with the luxury brand Genesis and to expand the proportion of high-profit SUVs and electric vehicle models. It is also important to enhance competitiveness throughout the value chain including parts, materials, and design, and to expand business areas into software and services. In particular, investments in future mobility technology development such as autonomous driving and connected cars should be expanded to strengthen market position through technological competitiveness.
The introduction of the US quota system is a challenge for the Korean auto industry, but at the same time, it can be an opportunity for improving fundamentals and strengthening competitiveness. If the government and companies closely cooperate to enhance negotiating power and prepare strategies to proactively respond to changes in the global environment, this crisis can be turned into an opportunity for new leaps forward.
💡 New Opportunities and Challenges in the Electric Vehicle Era
Let's analyze the opportunities and challenges that the quota system will bring at a time when the auto industry is transitioning to focus on electric vehicles.
First, electric vehicles can be a new opportunity factor in a quota system environment. Major countries including the US are actively encouraging the spread of electric vehicles as part of their carbon neutrality policies. Against this background, there is a possibility of allocating preferential quotas for electric vehicles or relaxing quota applications. In fact, the US is providing tax benefits for electric vehicles produced domestically through the Inflation Reduction Act (IRA), but separately, it is also reviewing flexible positions on imported electric vehicles for environmental policies. Korea has electric vehicle models such as Hyundai Ioniq, Kia EV6, and EV9 that are recognized for their competitiveness in the global market, and can strategically utilize these.
Second, electric vehicle batteries and parts supply chains are becoming the core of new competitiveness. In the electric vehicle era, core components such as batteries, motors, and inverters determine competitiveness. Korea has world-class battery companies such as LG Energy Solution, Samsung SDI, and SK On, and they are already making large-scale production facility investments in the US. This battery supply chain can be an important leverage in trade negotiations with the US. Also, areas where Korea has competitiveness such as automotive semiconductors and electrical parts can be strategically utilized as negotiation cards to ease quota restrictions on finished automobiles.
Third, long-term strategies tailored to the paradigm shift in the global automotive industry are needed. The transition to electric vehicles means a fundamental paradigm shift in the automotive industry, not just a change in power sources. In an environment where software and services, autonomous driving technology, and mobility platforms are becoming more important, it is difficult to secure sustainable competitiveness with only finished car exports. The Korean auto industry needs to evolve in the direction of creating new added value through an integrated approach of 'hardware+software+service'. Especially in the US market, it is important to strengthen both technological competitiveness and localization capabilities through strategic alliances with local technology companies, acquisition of startups, and establishment of R&D centers.
With the advent of the electric vehicle era, the global automotive industry is undergoing fundamental changes. The introduction of the US quota system is a challenge factor in the short term, but in the long term, it can be an opportunity for the Korean automotive industry to strengthen competitiveness in the electric vehicle and future mobility market and seek new growth opportunities. It is important to actively respond to changing environments through technological innovation and business model innovation.
4️⃣ In Conclusion
The automotive quota system introduced by the US in trade negotiations with the UK presents new challenges for the Korean automotive industry. While the reduction from high tariffs of 25% is positive, if export volumes are limited, it could disrupt growth strategies.
For effective response of the Korean automotive industry, close cooperation between the government and companies is needed. The government should secure sufficient quotas of at least 1 million cars in trade negotiations with the US and request separate quota allocations for eco-friendly vehicles such as electric and hydrogen cars. It is also important to enhance negotiating power by leveraging areas where Korea has competitiveness such as IT, semiconductors, and batteries.
At the corporate level, the proportion of local production in the US should be expanded, and export strategies centered on high-value-added models should be strengthened. Hyundai-Kia is already building an electric vehicle factory in Georgia and is adjusting strategies to increase profitability through strengthening the Genesis brand and electric vehicle lineup.
In the medium to long term, export markets should be diversified to countries like India and Southeast Asia, and investments in electric vehicles and future mobility technologies should be expanded to enhance global competitiveness. In particular, it is important to strengthen capabilities in new value-added areas such as software, autonomous driving, and connected services.
While the introduction of the US quota system is a threat factor in the short term, if the Korean automotive industry takes it as an opportunity to improve fundamentals and strengthen future competitiveness, the crisis can be turned into an opportunity for new leaps forward. At a time when the paradigm of the automotive industry is fundamentally changing, proactive and strategic responses from the government and companies are more important than ever.