EU-China hybrid deal exposes weaknesses in Korea’s low-tariff automotive market
Protectionist barriers rarely eliminate market distortions; they often redirect the pressure elsewhere. As major economic blocs close their doors to Chinese vehicles, South Korea could face an influx of rerouted exports, leaving domestic automakers to compete on uneven terms.
The European Union’s agreement with Beijing on Friday shows how quickly the ground is shifting. The deal aims to halve Chinese hybrid and plug-in hybrid exports to the bloc over the next four years, as European officials seek to protect an automotive industry under mounting pressure.
Chinese brands accounted for 25 percent of the EU’s hybrid market in the first half of this year, up from 2 percent in 2024. Brussels had imposed additional duties on Chinese electric vehicles, taking the total levy to as much as 45.3 percent, while hybrids faced only the standard 10 percent tariff. Chinese manufacturers exploited the gap, cutting prices and gaining ground.
The US has imposed tariffs of up to 127.5 percent on Chinese electric vehicles, and Japan has used subsidies to support its own industry. Despite their different approaches, both governments are seeking to shield local manufacturers from Chinese competition.
These barriers could redirect Chinese exports toward other markets. Chinese automakers face weak demand at home and mounting barriers in major export markets. As Europe narrows one route, manufacturers have a stronger incentive to seek markets where entry remains relatively easy. Korea is one such destination.
Its standard 8 percent tariff on imported passenger vehicles is lower than China’s 15 percent duty on imported cars. The gap reflects Seoul’s long-standing interest in keeping overseas markets accessible to local exporters.
Yet a policy designed to secure foreign market access leaves domestic producers exposed when trading partners offer their own manufacturers greater protection.
Chinese brands are already gaining ground here. New registrations of Chinese-brand electric vehicles reached 12,178 in the first half of this year, up 334.6 percent from a year earlier. BYD registered 20,137 vehicles from January through September, ranking fourth among imported-car sellers.
The challenge for Hyundai Motor and Kia is especially acute as competition extends into hybrids, a segment in which both companies have invested heavily.
Hyundai’s global sales fell 7 percent in the first nine months of the year, while domestic sales dropped 16.3 percent. Its first-half operating profit also declined 25.8 percent year on year.
Sales figures show that Chinese rivals are gaining a greater share as Korean automakers contend with weaker sales and margin pressure.
New tariffs may appear to be the quickest answer, but they would invite legal and diplomatic complications under World Trade Organization rules and the Korea-China free trade agreement. Retaliation could also reach exporters in sectors far removed from automobiles.
Seoul needs a response that strengthens local production without jeopardizing access to overseas markets.
The immediate gap is domestic support. The government’s domestic production tax credit covers batteries but excludes electric vehicles, the finished products those batteries power.
That omission weakens the incentive to manufacture in Korea just as foreign governments are backing their own industries. Seoul should reconsider the exclusion and extend targeted assistance to research, factory investment and critical supply chains.
The aim should be to improve the conditions under which Korean-made vehicles compete, not to promise shelter from competition. Local manufacturers depend on access to overseas markets, and a blunt tariff response could undermine that advantage.
An open market, however, needs a coherent industrial policy to sustain the domestic production base on which export competitiveness rests.
Trade barriers rarely contain competitive pressure within the markets where they are erected. Unless Seoul strengthens the foundations of automotive production at home, the country may find itself absorbing a larger share of the adjustment imposed by others.
khnews@heraldcorp.com
