Crisis for Domestic Exporters Relying on Local Production
Key Export Items Such as Auto Parts at Risk
Rising Supply Prices to Impact Finished Vehicle Costs
There is growing concern that the Mexican government's push for high tariffs will inevitably weaken the competitiveness of domestic auto parts manufacturers and drive up prices. If key components such as engines and transmissions become subject to tariffs, not only will costs rise, but local market share is also expected to take a hit.
According to industry sources on September 15, there are concerns that small and medium-sized second- and third-tier parts suppliers in Korea, which manufacture and export their products, could be pushed to the brink of survival due to Mexico's high tariff policy. While some analysts say that the direct impact on Hyundai Motor and Kia, which have a high proportion of local production, will be relatively limited, it is expected that the greatest shock will be felt by the finished vehicle and parts industries.
On July 8th, steel products were piled up at the export yard of Pyeongtaek Port in Gyeonggi Province. Photo by Kang Jinhyung
According to the Korea International Trade Association, Korea's top export items to Mexico last year included auto parts (2.1053 billion USD), followed by flat panel displays, galvanized steel sheets, cold-rolled steel sheets, and synthetic resins. Shin Wonkyu, Senior Research Fellow at the Korea Economic Research Institute, pointed out, "Since Korea has not signed a free trade agreement (FTA) with Mexico, the cost of intermediate goods such as automobiles, steel, and electronic products could rise."
An auto parts industry official expressed concern, stating, "For small second- and third-tier companies that produce in Korea and export directly to Mexico, this is a matter of survival." The official added, "For first-tier suppliers with local subsidiaries (factories), there is no real problem because they can manufacture in Mexico and supply to their Mexican plants. However, for small companies that produce domestically and export, this will lead to higher supply prices, which will in turn affect the price of finished vehicles and could result in a decline in local market share."
Lee Hangoo, Research Fellow at the Korea Automotive Technology Institute, warned, "If tariffs become a reality, it could disrupt the supply of parts for the annual production of around 400,000 vehicles at Kia's Mexican plant." He added, "Mexico's auto parts industry is highly competitive, which is why American automakers have mainly sourced parts from Mexico. If tariffs are imposed, Korean suppliers will have virtually no competitiveness left."
The steel industry is also facing significant pressure. Since 2020, Mexico's steel imports have surged, and Korea is Mexico's fifth-largest source of steel imports. Industry insiders note that since the Mexican government has been steadily raising steel import tariffs since 2023, the impact of the latest move will only accelerate the shock. In fact, Korea's steel export volume to Mexico, which was around 200,000 tons at the beginning of last year, fell to 130,000 tons in the first half of this year.
The home appliance industry is also closely monitoring whether intermediate goods will be included in the tariff list. An industry official said, "If parts and raw materials are subject to tariffs, supply chain costs could rise. The impact will vary depending on whether tariff reductions for intermediate goods exports are maintained, so it is difficult to predict the outcome at this stage."
There is also a risk that existing 'Prosec' (Prosec-sectoral promotion program) benefits could be reduced. This system allows preferential tariff rates to be applied to imports for specific production sectors such as textiles, steel, and automobiles. Han Areum, Senior Research Fellow at the Korea International Trade Association, said, "The industry's interpretation that the impact will be limited is based on the expectation of benefiting from Prosec. However, if Mexico's purpose is to boost domestic production, there is every possibility that the scope of Prosec could be reduced, so caution is advised."
Researcher Shin urged, "It is important to quickly assess exposure to tariffs and secure alternative sourcing routes and methods for the affected items. If necessary, companies should check whether highly taxed items can be localized or sourced from countries that have a free trade agreement with Mexico."
Meanwhile, the Mexican Ministry of Economy is pushing to adjust import tariffs on about 1,500 items, including automobiles, textiles, steel, and home appliances. If the budget bill passes the legislature, auto parts, clothing, footwear, home appliances, glass, cosmetics, and other products could face tariffs of up to 50%.
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