Japanese and South Korean automakers are beginning to pass rising trade costs onto American consumers as hopes for a swift resolution to tariff negotiations with the US continue to fade.
Toyota announced it will raise the average price of its new vehicles sold in the United States by US$270 per unit starting July 1, 2025, according to a recent Nikkei report. Mitsubishi Motors and Subaru are also implementing price hikes, marking a significant shift in strategy after months of absorbing added costs following a 25% US import tariff imposed in April 2025.
Initially, Japanese automakers had opted to shoulder the burden of the tariffs, maintaining US price stability in the hope of a breakthrough in trade talks. But with negotiations now stalled and revenue pressures mounting, that cost is being shifted to consumers.
South Korean carmakers, meanwhile, are reaching a tipping point. Hyundai Motor and Kia Motors had anticipated the tariff impact and ramped up US exports in early 2025, building up inventory to temporarily insulate themselves from pricing adjustments. The strategy paid off: in the first half of 2025, combined US sales — including the luxury Genesis brand — reached 893,000 units, a 9.2% year-over-year increase, marking a record for the group.
But that inventory cushion is now thinning.
Inventory buffers wear thin
Analysts warn that beginning in July 2025, Hyundai and Kia may be forced to raise US prices by as much as 10% unless tariff rates are reduced. If tariffs are dialed back to 10%, Korean brands could instead scale back consumer incentives to manage the cost impact more discreetly.
Diplomatic paralysis and policy uncertainty
South Korea and Japan face similar frustrations: little progress has been made in tariff negotiations with the United States. South Korea's new president, Lee Jae-myung, has yet to meet with President Donald Trump, and high-level engagement between the two governments remains limited.
Trump recently signaled a tough stance, stating that Korea and Japan should not expect preferential treatment compared to US automakers, a statement that has dampened industry hopes for a near-term resolution.
Production shifts to dodge tariffs
In response, Hyundai Motor Group is accelerating localization efforts. During the company's first-quarter 2025 earnings call, it outlined a plan to optimize operations at its Alabama plant and a newly opened HMGMA in Georgia, both of which will be leveraged to mitigate cost pressures and enhance supply chain resilience.
Notably, production of the Tucson SUV, previously built at Kia's Mexico plant, will shift to the Georgia factory to avoid tariffs. Models destined for the Canadian market will now be sourced from Mexico, allowing Hyundai to reallocate US-bound production to tariff-compliant sites.
This shift is expected to increase the HMGMA facility's capacity to up to 500,000 units annually, pushing Hyundai's total North American production capacity to 1 million vehicles. The company is also evaluating whether to further redistribute the production of select models to other global sites based on trade and market conditions.
Pricing pressure mounts in the second half
While Hyundai and Kia may soon follow their Japanese counterparts in raising prices, analysts note that the early moves by Toyota and others give Korean automakers some breathing room.
With no resolution in sight for tariff negotiations, South Korea's carmakers now face a delicate challenge: how to sustain growth while defending margins in the increasingly protectionist US market.
Article edited by Jerry Chen
