"If the country does not get an exemption from the heavy duties, Korea's overall vehicle production could drop by 8 percent and the country's trade balance is projected to decline by up to $9.8 billion," the KERI report said. 

Moreover, the U.S. may face retaliatory tariffs on its vehicles and auto parts by its trading partners, it said.

"The U.S. move to protect its auto industry through higher tariffs on imported vehicles rather than technology development and innovation will hurt the competitiveness of U.S. carmakers over the long haul," KERI researcher Jeong Jae-won said in the statement.

In May last year, US President Donald Trump ordered a comprehensive assessment into whether foreign cars and parts posed security threats. Under Section 232, Trump can order import adjustments that could affect trade. (Yonhap)