US Tesla - China Electric Buses and Microcars... Trade Deficit Scale Ranks 1st and 2nd Respectively
[Asia Economy Reporter Yoo Je-hoon] South Korea's trade deficit in the electric vehicle (EV) sector with the United States and China has been deepening. Especially recently, as the U.S. and China have been implementing policies favoring domestically produced EVs, voices are growing for South Korea to introduce subsidy policies based on the principle of 'reciprocity.'
According to the report "Trends in EV Exports and Imports and Comparison of EV Subsidy Policies among South Korea, the U.S., and China," published by the Korea Automobile Manufacturers Association (KAMA) on the 27th, South Korea's trade deficit in the EV sector with the U.S. from January to September this year was approximately $510 million (about 595 billion KRW), and the trade deficit with China was $18 million (about 2.1 billion KRW). The trade deficit with the U.S. and China ranked first and second among trading partners.
In the U.S. market, exports amounted to only $270 million, while imports reached $780 million. This is due to the influence of Tesla, the first mover in the EV sector. Although South Korea has consistently maintained a trade surplus in internal combustion engine vehicles with the U.S., the trade deficit continues in the EV market due to Tesla's expanding presence.
In fact, up to September this year, a total of 48,720 electric passenger cars were sold domestically, with Tesla maintaining the top market share at 33.4%, selling 16,287 units. Tesla also ranked first last year with total sales of 11,829 units.
In the Chinese market, EV exports are almost non-existent due to high tariffs, while EV imports reached $18 million. This was driven by increased imports of electric buses and ultra-small electric vehicles. Up to August this year, 230 electric buses and 2,051 ultra-small electric vehicles were imported. Notably, Chinese brands such as BYD and Higer accounted for 36% (200 units) of electric bus imports, threatening domestic brands (Hyundai Motor 224 units, Edison Motors 73 units, Woojin Industrial Systems 54 units).
Additionally, imports of Chinese-made EV parts have increased, and since last year, trade in automotive parts with China has also turned to a deficit, KAMA added.
The problem is that despite the growing trade deficit, both the U.S. and China continue to introduce discriminatory subsidy policies favoring domestically produced EVs. For example, China publishes a "New Energy Vehicle Recommended List" monthly, which is used for subsidy eligibility reviews, indirectly favoring domestic EVs.
Although China officially abolished the battery subsidy regulation favoring domestic products in 2019 amid international criticism, domestic manufacturers still must equip batteries produced by local companies on this list to receive subsidies.
Moreover, China implements the rural EV promotion program called "New Energy Vehicle Down to Countryside Activity Notice," providing financial subsidies from local governments to selected domestic regional brand models.
The U.S. currently provides a $7,500 tax credit subsidy for EV purchases, but a recent amendment proposed by the U.S. House of Representatives includes additional tax benefits of $4,500 for EVs produced in unionized U.S. factories and $500 for EVs equipped with U.S.-made batteries.
If the amendment is enacted, additional discriminatory benefits will be granted to General Motors (GM), Ford, and Stellantis, which have production plants and unions in the U.S., while most foreign-invested companies like Hyundai, which operate non-unionized, will inevitably face discrimination.
KAMA explained that the protectionist EV subsidy policies of both countries violate the World Trade Organization (WTO) free trade agreement principles but are being pursued based on political decisions to nurture their domestic EV industries.
Therefore, there are calls for South Korea to either reform its subsidy policies based on the principle of reciprocity like the U.S. and China or to negotiate to eliminate discrimination between domestic and Korean products under the Korea-U.S. and Korea-China Free Trade Agreements (FTAs).
Currently, South Korea provides subsidies up to 8 million KRW equally without discrimination between domestic and imported vehicles. Although minimum self-payment regulations have been established for electric buses, imports have not decreased after the improvement. For ultra-small electric vehicles, most use Chinese platforms but still receive subsidies of 4 million KRW per vehicle, effectively fostering the Chinese ultra-small EV industry with Korean taxpayers' money.
Jung Man-ki, chairman of KAMA, said, "It is concerning that the EV trade deficit with the U.S., our largest export market for finished vehicles, is expanding, and that trade with China, the world's largest market, has turned to a deficit not only in finished vehicles but also in parts." He added, "To strengthen the competitiveness of our electric-powered vehicle industry, in addition to providing purchase subsidies based on the principle of reciprocity, special support measures such as expanding tax credits for R&D and facility investments should be prepared for vehicles directly competing with Chinese-made electric buses and trucks."
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