Introduction
The global automotive industry has faced turbulence before, but few challenges have struck as swiftly and severely as the U.S. tariffs announced in early 2025. For Korean auto parts manufacturers—especially small and medium-sized enterprises—the impact has been devastating. Within months of the tariffs coming into effect, exports to the United States have fallen by 6.1 percent, and industry insiders warn that the situation may deteriorate further if Washington follows through on its plans to expand the tariff list to cover a wider range of components. The story unfolding is not simply about trade numbers; it is about the survival of hundreds of small firms, the stability of Korea’s manufacturing ecosystem, and the ripple effects across the global auto supply chain.
The Background: How Trade Tensions Escalated?
Trade relations between South Korea and the United States have historically swung between cooperation and contention. The 2012 Korea–U.S. Free Trade Agreement (KORUS FTA) promised to lower barriers, boost exports, and foster mutual growth. For years, Korean auto parts manufacturers benefited significantly from reduced tariffs and greater access to the lucrative U.S. automotive market.
However, the shift in Washington’s trade policy since 2023 has disrupted that stability. Driven by a broader protectionist agenda and pressure from domestic auto industry stakeholders, the U.S. administration has gradually reintroduced tariffs, claiming they are necessary to protect American jobs and domestic manufacturing capacity.
In early 2025, the U.S. imposed a new round of tariffs on imported auto parts from multiple countries, with Korean producers among the hardest hit. These tariffs applied to both primary components—such as transmissions, suspension systems, and brake assemblies—and certain “indirectly linked” products like precision bearings, wiring harnesses, and electronic modules used in vehicle assembly.
Why Small Firms Are Hit The Hardest?
Large conglomerates in Korea’s automotive sector—Hyundai Mobis, Mando, and others—have greater resilience to absorb tariff shocks. They can adjust their pricing strategies, shift production to overseas facilities, or negotiate directly with large U.S. automakers to minimize losses.
In contrast, small and medium-sized enterprises (SMEs) lack such flexibility. Many are specialized component makers operating on thin profit margins, with production geared almost entirely toward the export market. A single tariff increase can push them into unprofitability.
For these firms, the 6.1 percent drop in exports recorded since early 2025 is not just a statistic—it represents lost contracts, unsold inventory, and the painful reality of laying off workers. Industry associations warn that if the tariffs are expanded, the cumulative impact could drive dozens, perhaps hundreds, of these SMEs into bankruptcy within the next 18 months.
The Numbers Behind The Decline
Data from Korea’s Ministry of Trade, Industry, and Energy (MOTIE) shows that exports of auto parts to the U.S. totaled approximately USD 4.3 billion in 2024. In the first half of 2025, that figure had already declined to USD 2.02 billion—a significant year-on-year drop. The decline is especially pronounced in product categories targeted by the tariffs:
- Engine and powertrain components: Down 8.4 percent.
- Suspension and brake assemblies: Down 7.1 percent.
- Electronic modules and sensors: Down 5.8 percent.
- Indirectly linked products such as bearings and wire harnesses: Down 4.6 percent.
These reductions are exacerbated by the fact that U.S. buyers are increasingly turning to suppliers in countries unaffected by the tariffs, such as Mexico and certain Southeast Asian nations.
Industry Voices: “A Death Knell For Small Businesses”
The phrase “nothing short of a death knell” has been echoed by numerous industry figures in recent weeks. The Korea Auto Parts Association (KAPA) issued a strongly worded statement, urging both Seoul and Washington to reconsider the tariffs and negotiate exemptions for small manufacturers.
One mid-sized supplier based in Gyeonggi Province, producing high-precision steering components, reported that its U.S. orders had fallen by 35 percent in just four months. “We cannot compete when the buyer can get the same part from a tariff-free supplier in Mexico,” said the company’s CEO. “We are already operating at a loss, and unless something changes, we will have to shut down one of our production lines by the end of the year.”
For many firms, the problem is compounded by the fact that the U.S. market accounts for over half of their total exports. Diversifying to other markets takes time, investment, and relationships—luxuries that struggling SMEs often cannot afford.
Political Reactions In Seoul
The South Korean government has reacted cautiously, aware that the issue is part of a broader geopolitical and economic negotiation with the United States. Officials from MOTIE have confirmed that talks are ongoing to secure tariff relief or phased exemptions, but no concrete outcomes have been announced.
Lawmakers from industrial regions, particularly in provinces like Gyeonggi, North Chungcheong, and South Jeolla, are pressing for faster action. They warn that inaction will lead to widespread job losses, not just in manufacturing plants but across the network of logistics, raw material supply, and support services that depend on the auto parts industry.
U.S. Rationale: Protecting Domestic Jobs
From the American perspective, the tariffs are part of a broader industrial policy aimed at revitalizing domestic manufacturing. U.S. auto parts producers have long complained about competition from lower-cost imports, arguing that foreign suppliers enjoy advantages in labor costs and, in some cases, government subsidies.
Supporters of the tariffs argue that they level the playing field and encourage U.S. automakers to source parts domestically. However, critics—including some within the American automotive industry—point out that the disruption to established supply chains can lead to production delays, increased costs for consumers, and retaliatory trade measures from affected countries.
Ripple Effects Across The Global Supply Chain
The tariffs’ impact is not limited to Korea and the U.S. Many Korean auto parts are not sold directly to U.S. carmakers but to global Tier 1 suppliers who integrate them into vehicles assembled in North America. When those suppliers are forced to pay more for components, they may adjust their sourcing strategies, leading to further losses for Korean firms.
This kind of supply chain restructuring can have long-term consequences. Once a buyer shifts to an alternative supplier, winning back that business can be difficult—even if tariffs are later removed. Industry analysts warn that the current disruptions could permanently reduce Korea’s market share in the U.S. auto parts sector.
Strategies For Survival
Faced with an existential threat, some SMEs are exploring strategies to survive:
Market Diversification – Targeting Southeast Asia, Europe, and the Middle East as alternative export destinations.
Local Production in the U.S. – Setting up assembly or manufacturing operations in tariff-exempt zones within the United States or Mexico.
High-Value Specialization – Moving up the value chain by focusing on advanced components such as EV battery modules, ADAS sensors, and lightweight composite materials where competition is less price-driven.
Joint Ventures – Partnering with foreign companies to share costs and gain market access.
These strategies require capital and expertise, which many small firms struggle to access without government support.
The Road Ahead: Negotiations And Uncertainty
Trade experts believe the outcome will depend largely on the ongoing negotiations between Seoul and Washington. If Korea can secure exemptions for certain products or win phased tariff reductions, the most severe impacts might be avoided. However, if talks stall and tariffs expand as threatened, the damage could become irreversible.
Some see a parallel with the steel tariffs of the early 2000s, which were eventually rolled back after international pressure and WTO challenges. Yet in today’s politically charged climate, the path to resolution may be longer and more uncertain.
Conclusion
The current tariff dispute is more than an economic challenge—it is a test of resilience for Korea’s auto parts industry. The coming months will determine whether small firms can adapt quickly enough to survive in a more protectionist world or whether the industry will see a wave of closures that reshapes its global position.
For now, one thing is certain: without swift policy action and strategic adaptation, the “death knell” that industry leaders warn of may become an unavoidable reality for many of Korea’s small auto parts manufacturers.