This automaker may benefit from TPP’s demise. Hint: It’s not American


President Donald Trump's pegged his move to scrap the Trans-Pacific Partnership (TPP) as ushering in a golden age for U.S. companies long hobbled by unfair trade deals.

Add an unlikely beneficiary: Hyundai Motor.

The scrapping of the deal will likely benefit Hyundai by scuttling the advantage Japanese carmakers would have garnered from TPP, Daiwa analyst Sung Yop Chung said in a note this week, describing Trump's move as a "sigh of relief" for South Korea's carmakers.

Trump on Monday formally pulled the U.S. out of the TPP, which would have created a 12-country free-trade bloc. The TPP, which was negotiated during President Barack Obama's term in office, hadn't yet been voted on or ratified by Congress.

Trump also signaled he planned to renegotiate the North American Free Trade Agreement (NAFTA), enacted in 1994, which eliminated most tariffs between Mexico, the U.S. and Canada.

South Korea wasn't a party to the 12-country TPP.

An employee assembles a Hyundai Motor vehicle on the production line at the company’s factory in Asan, South Korea.
SeongJoon Cho | Bloomberg | Getty Images

"If TPP were to be implemented, Japanese carmakers such as Toyota and Honda could have benefited, based on the current tariff of 2.5 percent imposed on exports," he wrote. The U.S. currently charges a 2.5 percent tariff on the cars it imports from Japan.

Additionally, Chung noted that under TPP, Japanese carmakers would have benefited from a lower local-content ratio of 45 percent, compared with 60 percent currently.

The local-content ratio determines how much of a car must be made within a trade bloc to qualify for the trade-deal's benefits.

Chung pointed to the likelihood that the lower content ratio would allow Japanese automakers to source cheaper parts from a greater number of locations.

"In other words, Japanese automakers could have gained stronger price competitiveness, coupled with the recent weakness in the yen versus the U.S. dollar given the widening gap between their interest rates," Chung said.

He also noted that the if the recent strength of the U.S. dollar persists, it would also boost Hyundai's earnings, estimating that every 1 percent rise in the greenback against the South Korean won would boost the auto maker's earnings per share by 1.4 percent this year.

The benefits of TPP's demise likely wouldn't flow as easily to Hyundai Motor's affiliate Kia Motors, however, Chung noted.

That's because renegotiating NAFTA and/or imposing a border tax of as much as 35 percent would be negative for Kia, which manufactures in Mexico for export to the U.S.

In a note from November, Chung estimated that Kia had an 18.3 percent revenue exposure to exports to the U.S. and 1.8 percent exposure to U.S. imports from Mexico, with a potential downside of as much as 15.2 percent to his 2017 earnings per share forecasts.

Other analysts have expressed serious concerns about how a Republican border tax plan could impact the U.S. economy.

For example, in a report dated Monday, Deutsche Bank estimated that if the U.S. introduced a "border adjustment" for imported products, it would increase the cost of the average vehicle by $2,300, reducing U.S. demand by 1.2 million units a year in the short term.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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