New US tariffs may hit Korean tire companies
Due to the introduction of new tariffs on imports in the US, Korean tire companies may incur losses of tens of millions of dollars, reports Korea Times.
Kumho produces around 3.3 million tires per year at its plant in Georgia (US), but the majority of tires sold in the country, namely 13.5 million units, are manufactured at the company's Binh Duong site (Vietnam). Last year, imports accounted for 80% of Kumho's sales in the US market, which totaled $750 million.
95% of the tires supplied by Kumho to the US are produced in Vietnam, and were previously subject to a tariff of only 7.89%. If the rate increases to 25%, importers' costs will increase by $120 million, and a significant portion of these costs may fall on Kumho.
Hankook is in a similar situation. Although the company has a plant in Tennessee that can produce around 5 million tires per year, last year the share of imports in the company's turnover in the North American market, which amounted to $1.2 billion, was 75%. Half of the imported tires are produced in Indonesia, and the current tariff rate is only 4%. Starting from next month, when 25% tariffs are introduced, Hankook will have to pay importers an additional $120 million.
Experts' concerns are that the situation may worsen. As noted by Korea Times, so far the Trump administration has not decided whether to introduce 25% tariffs on Vietnamese and Indonesian tires as on auto parts or to apply "reverse" duties to them. In the latter case, the rate may increase to 46% for products from Vietnam and up to 32% for tires from Indonesia.
Currently, Hankook and Kumho are preparing countermeasures in case of the worst scenario, and the first company intends to accelerate the expansion of its plant in Tennessee and double its capacity, increasing it to 12 million tires per year. "We will minimize short-term damage while expanding the Tennessee plant to increase production volumes," the company said.
In turn, Kumho plans to adjust its supply routes. If "reverse" duties are introduced on Vietnamese tires, the company plans to replace exports to the US with the help of its plants in South Korea, and there are also plans to localize production in Europe. "The US is a key market for us, where there is high demand for SUV tires and large-diameter products," the company said, adding that it will reduce the damage from new tariffs due to flexible supply chains.
Nexen Tire, the third-largest Korean tire company, is in an even more difficult situation, as it does not have its own plant in the US. At the same time, in the North American market, Nexen receives 27.2% of its revenue, which is roughly the same as Hankook and Kumho (27.3 and 30.8%, respectively).
Outside of Korea, Nexen has only two production sites, located in Qingdao (China) and Žatec (Czech Republic). The Czech plant produces tires mainly for the European market, and products manufactured in Korea are primarily supplied to North America.
According to analysts, Nexen's management seems to have missed the moment to be prepared for the introduction of new tariffs in the US. In 2023, the company announced that it intends to invest $1.2 billion in the construction of a plant in the United States and is looking for a suitable location for it, but last year it was decided to revise the plans, as the required capital investments were too high for the company, which is in a difficult financial situation.
"Unlike premium brands like Michelin and Pirelli, Nexen Tire operates in the budget tire market, focusing on savings opportunities," an industry expert cites Chosun Ilbo. "In the event of the introduction of new unified tariffs, there is a high probability that the company's overall performance will deteriorate due to a decrease in sales in the North American market."