South Korean carmakers remain on edge as a decision on tariffs by US President Donald Trump looms closer, with the Department of Commerce reportedly having concluded in its confidential recommendation report due Sunday that auto imports could hurt national security.

Last week, Agence France-Presse reported the Department of Commerce had concluded that auto imports are “a threat to national security,” citing two unnamed sources and the report expected to be delivered to the White House by Sunday.

The recommendations of the report came as Trump had requested the government to look into whether auto imports endanger US national security on the grounds that imported cars undermine the local car industry and take away jobs. Based on the report, he will make a decision in 90 days on whether to impose tariffs of up to 25 percent on imported cars.

Such a tariff would take a heavy toll on the Korean automobile industry because its largest car export destination is the US. As of 2017, Korea exported around 840,000 cars to the US, accounting for one-third of the nation’s total car export volume. Tariffs have not been imposed on these cars under the bilateral trade deal between the two nations.

Industry watchers say the possible 25 percent tariffs on imported automobiles would drive the export prices of Korean cars up by up to 12 percent and consequently lower production. This would result in an annual loss of 3.4 trillion won ($3 billion) for the Korean carmakers, according to Hana Institute of Finance.

“The estimated loss is 71 percent of the total net income of the nation’s car companies in 2017,” said Kim Dong-han, a researcher at Hana Institute of Finance.

The nation’s car parts companies selling goods with relatively lower margins would also be hit hard, and this would possibly shake the ecosystem of the nation’s car industry, according to Lee Hang-koo, a senior researcher at the Korea Institute for Industrial Economics & Trade.

In September last year, President Moon Jae-in had brought the issue to the attention of Trump during a summit before signing the revision of their bilateral trade deal. Moon had requested Trump to “exempt Seoul from potential tariffs on auto imports,” as Korea’s trade surplus with the US has been decreasing and half of Korean cars exported to the US are already produced in the US.

On Friday, the US Center for Automotive Research released a report raising concerns about possible auto tariffs, saying they would increase the average cost of new cars and hit US dealerships.

It added that possible tariffs would increase the average cost of all new cars by as much as $4,400, and all vehicles by $7,000, if no countries were exempted. US dealerships are likely to experience a decline in revenue of between $6.1 billion and $43.6 billion and job losses of between 10,700 and 77,000 employees. 

By Shin Ji-hye (shinjh@heraldcorp.com)