Trump Threatens Tariff Hike on South Korea — Korean Auto Stocks Plunge Then Rebound from Lows: What's Behind It?
On Monday local time, U.S. President Trump suddenly announced via social media that tariffs on South Korean goods, including automobiles, would be raised from 15% to 25%. Markets reacted to the renewed U.S. policy uncertainty by once again flowing into safe-haven assets.
South Korean markets opened weak on Tuesday, with auto stocks falling sharply early in the session. However, by press time, the sector had reversed course. Hyundai Motor shares fell as much as 4.8% earlier but narrowed to a 0.4% decline; Kia shares dropped as much as 6% but were down only 1.3% at last check.
The broader KOSPI index swung from negative to positive, rising 1.6%. The USD/KRW rate briefly climbed above 1,451 before retreating to around 1,445. (The day before, the won had strengthened as much as 2% against the dollar.)
Latest from sources: U.S.–South Korea trade talks have already reached agreement at the leadership level. Meritz Securities senior analyst Kim Joon-sung stated that U.S. tariffs on South Korean vehicles are expected to be reconfirmed at 15%.
The Real Intent Behind the Move
Trump claimed the tariff increase was due to South Korea's failure to implement the trade agreement. Experts interpret this as pressure tactics to push South Korea to quickly fulfill its investment commitments to the U.S., thereby easing domestic U.S. concerns over the legality of the tariffs.
The U.S. Supreme Court is currently reviewing whether the Trump administration's reciprocal tariff policy complies with the legal authority it invoked. Economists and legal experts widely expect the Court to uphold lower-court rulings declaring reciprocal tariffs unlawful and to strike down the policy — a potential major blow to Trump's trade agenda.
This looming risk may be pushing the Trump administration to accelerate implementation of existing trade deals with other countries to minimize losses if tariffs are invalidated.
The bilateral trade agreement between South Korea and the U.S. is still under review in the South Korean National Assembly. It requires South Korea to invest up to $350 billion in the U.S. in exchange for preferential U.S. tariffs on South Korean goods.
Kwon Nam-hoon, president of the Korea Institute for Industrial Economics and Trade, said Trump's move appears aimed at ensuring passage of the delayed special investment bill in the Korean parliament. With the Supreme Court likely to overturn reciprocal tariffs, the Trump administration is under time pressure and is using the tariff threat against South Korea as a "test the waters" step.
Shin Won-kyu, chief analyst at the Korea Economic Institute, added that the action may stem from a confluence of pressures: domestic U.S. criticism of Trump's immigration policies and Greenland plans, escalating tensions with the EU and Canada, and growing anxiety overall.
Additionally, South Korea's recent push on digital regulation and the ongoing large-scale data breach investigation into e-commerce giant Coupang may have contributed to triggering the tariff threat.
That said, no amount of context can hide the rushed and abrupt nature of Trump's move. Yoon Heo, economics professor at Sogang University, commented that unilaterally overturning agreed-upon bilateral terms via social media not only violates diplomatic protocol but is also extremely difficult to understand from a diplomatic perspective.