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SEOUL — In the wake of the U.S. President Donald Trump’s newly announced tariffs on major trading partners, South Korean companies are bracing for impact. The sweeping tariffs, set to affect industries ranging from automobiles to semiconductors, are pushing Korean manufacturers to rethink their production strategies and increase local output in the U.S. and Mexico. As the country faces a 25% tariff on several of its key exports, industry leaders are evaluating the long-term implications and adjusting operations to maintain competitiveness in the U.S. market.
New U.S. Tariffs Create Challenges for Korean Industries
On April 2, 2025, President Trump unveiled reciprocal tariffs targeting countries he deems to engage in unfair trade practices. For South Korea, the impact of these tariffs, especially the 25% duty on various exports, is significant, as major industries like smartphones, home appliances, semiconductors, and automobiles brace for reduced competitiveness in the U.S. market. The new tariffs cover a wide array of products, including cars, steel, batteries, and electronics, potentially diminishing the export value of these items.
Korean manufacturers are now recalibrating their strategies to address the tariff challenges. By focusing on increasing production capacity in the U.S. and Mexico, companies hope to mitigate tariff impacts and maintain their market share in the U.S. This move reflects the companies’ shift toward localized production in response to higher duties and global economic volatility.
Smartphone Industry Hit Hard by Tariff Rates
The smartphone industry stands to face the most damage, with South Korea’s Samsung Electronics, which produces more than half of its smartphones in Vietnam, among the hardest hit. Vietnam’s reciprocal tariff rate of 46% on U.S. exports is particularly concerning, as the majority of Samsung’s smartphones exported to the U.S. are manufactured there. While other countries like Brazil and Turkey also produce Samsung phones, the production capacities in these regions are insufficient to fully meet U.S. demand.
Experts suggest that Samsung may shift its production strategy to adjust to the tariffs, possibly increasing its production capacity in other regions to offset losses in its Vietnamese factories. Additionally, LG Electronics, which exports home appliances from Vietnam, Thailand, and China, faces similar challenges, as tariffs increase in these regions. These companies are expected to ramp up production in the U.S. and Mexico, where tariffs are absent or reduced under agreements like the USMCA.
Home Appliance and Battery Sectors Look to U.S. and Mexico
Both Samsung and LG have significant production capacity in the U.S. and Mexico, which will help alleviate some of the burden from the new tariffs. As long as these goods are produced locally in the U.S., they will not incur the tariffs, offering a crucial lifeline to these companies. As such, both tech giants are likely to invest more in expanding their production facilities in these regions to minimize tariff impacts on home appliances and electronics.
The battery manufacturing industry also faces indirect consequences from the tariff hikes. While major battery producers such as LG Energy Solution, Samsung SDI, and SK On have already established large-scale manufacturing facilities in the U.S. to secure tariff exemptions, they are concerned about the increased tariffs on essential raw materials, like cathode materials, which are imported from South Korea. The tariffs may lead to price hikes for U.S. clients, complicating the supply chain for battery manufacturers.
Automotive and Steel Sectors Bracing for Impact
The automotive sector is another major area of concern. Hyundai Motor and Kia, which have substantial production facilities in the U.S., are already facing a 25% tariff on imported vehicles under Section 232 of the Trade Expansion Act. However, with most of their U.S. production exempt from tariffs, Hyundai Motor Group plans to respond by gradually expanding its production capabilities in the U.S. to mitigate tariff impacts.
Similarly, the steel industry in South Korea, which exports substantial quantities of steel to the U.S., will also be hit hard by the new tariff regime. Reports suggest that a 25% steel tariff will likely lead to an 11.47% reduction in export volumes to the U.S., equating to a $330 million loss in revenue. Both Hyundai Steel and POSCO are looking to offset these losses by expanding their operations in the U.S. to reduce the impact of the tariff on their steel exports.
Semiconductors Face Future Uncertainty
Though semiconductors have been temporarily excluded from the new tariff list, there are indications that President Trump will announce tariffs on semiconductor imports in the near future. This could have a significant effect on South Korea’s semiconductor giants, such as Samsung Electronics and SK hynix, both of which have substantial semiconductor production facilities in the U.S. Samsung Electronics’ semiconductor plants in Austin and Taylor, Texas, along with SK hynix’s planned production facility in Indiana, may face new challenges if tariffs are imposed.
Korean semiconductor producers are already considering contingency plans to deal with potential tariff increases, including expanding their production capacities in regions outside the U.S. or accelerating the shift to advanced semiconductor technologies that could potentially bypass these tariffs.
Korean Companies’ Strategic Responses
To counter the adverse effects of these tariffs, Korean companies are focusing on three key strategies:
- Localizing Production: Expanding manufacturing in the U.S. and Mexico to avoid tariffs and adhere to trade agreements like the USMCA.
- Rethinking Supply Chains: Adjusting sourcing strategies for raw materials and components to minimize costs impacted by tariffs.
- Diversification: Exploring alternative markets for exports to reduce reliance on the U.S. market, particularly in Asia and Europe.
Korean companies are also leveraging their strong relationships with U.S. trade partners to advocate for tariff exemptions and trade flexibility. The ongoing trade dispute with the U.S. presents challenges, but it also offers opportunities for these companies to adapt and enhance their global operations.
Key Points:
- U.S. reciprocal tariffs are set to negatively impact a wide range of Korean exports, including smartphones, home appliances, steel, and semiconductors.
- Korean companies like Samsung and LG are focusing on expanding production in the U.S. and Mexico to minimize tariff costs.
- The automotive and steel industries are particularly vulnerable, with potential losses expected from reduced export volumes.
- Korean semiconductor producers are bracing for future tariff impositions that could affect their U.S.-based production facilities.
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