Rising tariffs on Chinese electric vehicles (EVs) create a distinct opportunity for South Korean EV producers to expand internationally. The US International Trade Commission has projected that a 20 per cent increase in global tariffs on Chinese EVs could boost South Korean EV exports by 10 per cent.

The US–China trade war began in 2018 under the first Trump administration, leading to tariffs on various Chinese products, including EVs, following a Section 301 investigation. Since then, Washington has adopted a bipartisan consensus on a so-called ‘hawkish on China’ policy, increasing tariffs on Chinese EVs to 100 per cent and on lithium-ion EV batteries to 25 per cent in 2024. Now in his second term, President Trump has introduced a 25 per cent tariff on all imported automobiles and parts, effective from 3 April 2025.

Similarly, in October 2024, the European Commission decided to impose tariffs of up to 45 per cent on Chinese-made EVs, citing the unfair competitive advantages granted to Chinese manufacturers. Though the EU and China have agreed to engage in further discussions to explore alternatives to these tariffs, whether significant changes will be made remainsuncertain.

Amid global efforts to impose tariffs directly on Chinese EVs, the United States enacted a 25 per cent tariff on Mexican imports on 4 March 2025, closing a key tariff-exempt route for Chinese goods under the US–Mexico–Canada Agreement(USMCA). While South Korean manufacturers also have made investments in Mexico to capitalise on tax reductions, the closer ties between Chinese EV companies and the Mexican market suggest that South Korean companies could benefit significantly from this policy shift.

Despite the advantages of tariffs on Chinese EVs and favourable geopolitical conditions, South Korean manufacturers still face intense competition from Chinese EV makers both at home and abroad. Even within South Korea, in the first half of 2024, Chinese-made EVs accounted for nearly 30 per cent of all EV sales, contributing to a significant decline for Hyundai and Kia, while exports dropped to 159,728 units from 207,298 in 2023. The newly launched Chinese BYD in South Korea reflects this phenomenon well. 

Purchases of Chinese EVs in Europe, including battery electric and plug-in hybrids, surged by 49 per cent in February 2025 compared to the previous year. On top of this, Chinese lithium iron phosphate batteries are also known for their technological competitiveness and cost-effectiveness, leading to a decline in South Korean battery exports to Europe over the past five years.

Chinese EV brands have gained attention for their affordability, with prices remaining under US$25,000 in the United States even after a 100 per cent tariff, making direct price competition difficult for South Korean manufacturers. To stay competitive, South Korean EV and battery makers should instead focus on differentiation through quality, advanced features, innovative design and unique marketing strategies. Kia’s Electric Platform Beyond Van and Hyundai’s groundbreaking use of Amazon for car sales exemplify this approach.

South Korean manufacturers can also enhance transparency to address growing concerns over EV safety, especially battery fires. Hyundai’s disclosure of its battery suppliers after a fire involving a Mercedes-Benz EV highlights that proactively addressing safety issues and providing clear information on product quality builds consumer trust. Committing to transparency can give South Korean EVs a competitive edge over Chinese alternatives, where compliance with US mobile safety standards may pose a barrier to entry.

The US 2022 Inflation Reduction Act (IRA), which incentivised investments in clean energy and manufacturing, has benefitted South Korean EVs. Following concerns that the new law would discriminate against South Korean companies, South Korea and the Biden administration collaborated to mitigate restrictive provisions. The IRA particularly boosted South Korean battery makers, with nearly half of eligible EVs using batteries from LG Energy Solution, SK On or Samsung SDI, driving a 27 per cent rise in EV battery exports to the United States in 2023, making it South Korea’s top export market.

Additionally, South Korea’s battery industry has secured an exemption from US IRA restrictions on EV batteries containing Chinese graphite until the end of 2026. This is notable because Chinese companies dominate the market for many of the key battery materials covered by IRA subsidies and are major partners for South Korean companies.

South Korean companies with joint ventures in China would likely have needed to adjust their ownership structures to reduce Chinese investment stakes under the IRA provisions. This exemption gives South Korean firms crucial time to diversify supply chains.

Trump’s second term raises concerns about Republican efforts to cut IRA spending and reverse climate policies. By 15 October 2024, Republicans had voted 53 times in the House and once in the Senate to repeal parts of the IRA, with the House passing 20 bills to limit it, signalling potential rollbacks. While the IRA’s 10-year framework delays immediate changes, such an uncertainty calls for South Korean EV and battery makers to act swiftly to navigate the industry’s shifting geopolitical landscape.

As rising tariffs on Chinese EVs create market opportunities, South Korean companies must swiftly capitalise by leveraging their technological expertise, innovation, unique marketing strategies and transparency, while staying attuned to US policy shifts. Despite political and economic uncertainty, this approach can position them as global leaders in the EV and battery market, potentially surpassing Chinese competitors and ensuring stable profits.