Jan. 23, 2025

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With former President Donald Trump set to return to the White House later this month, South Korean companies are bracing for economic upheavals.

From tariffs to trade relations, the possibility of sweeping changes has put companies on edge as they weigh the risks and opportunities.

Trump’s campaign rhetoric has been full of bold promises, from slapping hefty tariffs on imports to enforcing aggressive trade policies. But if there’s one thing businesses learned from his first term, it’s that these threats often serve as bargaining chips rather than permanent policies.

While South Korean firms with billions in US investment should prepare for some turbulence, there’s no need to panic just yet. Trump’s playbook might be less about rewriting the rules and more about using them to his advantage.

In prepping for what to expect, The Korea Herald has fact-checked some of Trump’s remarks related to the economy and announced policies, analyzing their feasibility and potential implications for Korea.

"We’re going to be a tariff nation. It’s not going to be a cost to you, it’s going to be a cost to another country." (At campaign rally in Wisconsin on Sept. 7, 2024)

False. Tariffs make imports more expensive, but it is the buyer who pays.

"Tariff is the most beautiful word in the dictionary," Trump famously said during his campaign.

And he’s doubling down on that stance, threatening a 60 percent duty on all imports from China and even floating a blanket 10-20 percent tax on goods from every other country.

On Day 1 of his second term, he has vowed to impose a 25 percent tariff on imports from Mexico and Canada and tack on another 10 percent for China.

For South Korea, an export-driven economy, these policies could sting. The US is a key market for Korean products like cars, electronics and semiconductors.

But if Trump’s tariffs go into effect, it’s not just South Korean firms that will feel the pain -- American consumers will too.

Tariffs are essentially taxes on imports, and it is American importers -- not foreign manufacturers -- who actually foot the bill. To cover these added costs, business often pass the burden to the consumers by raising prices. According to a report from ING, these tariffs could end up costing Americans as much as $2,400 per person each year.

And retaliation is always a possibility. China, Mexico, and Canada -- the targets of Trump’s Day 1 tariffs -- account for nearly half of all US imports. If these countries retaliate, costs for daily essentials like fresh fruits and vegetables from Mexico and oil from Canada could rise even further.

"We helped Korea come back from the Korean War. … It‘s time we stop. They are a money machine. … Sure it’s an ally but you know on trade it‘s not an ally, on trade it’s an enemy. Some of the worst people we have in terms of trade are allies." (Interview with Larry Kudlow of Fox Business on Oct. 4, 2024)

Mostly false. US has trade deficit with Korea, but those imports help fuel its economy.

The US does run a trade deficit with South Korea. In 2023, it hit $51.4 billion, making Korea the eighth-largest contributor to America’s trade gap, according to US data. For Trump, who’s laser-focused on shrinking this deficit, it is a figure that’s hard to ignore. But the story is not as straightforward as it seems.

A big chunk of what South Korea sends to the US is intermediate goods -- things like semiconductors, battery components, displays and steel that are used to make other products -- that are essential for US manufacturing. Data from the Export-Import Bank of Korea shows these materials accounted for over half of Korea’s exports to the US during both Trump’s and Biden’s tenure. In 2022, they comprised 60.4 percent of Korean shipments, and last year, they made up 50.1 percent.

Over the past three years, Korean conglomerates like Samsung, Hyundai, SK, LG and Hanwha have injected over $114 billion to the US, building plants, creating jobs and boosting local economies.

The recent uptick in the trade deficit also reflects the local materials being shipped in to help construct these new facilities.

Should Trump raises concerns over the trade gap, Korean firms should be ready to explain how their exports and investments are bolstering the US economy, not undermining it.

"Vote for Trump, and you will see a mass exodus of manufacturing from China to Pennsylvania, from Korea to North Carolina, from Germany to right here in Georgia." (Campaign rally in Savanah, Georgia, on Sept. 24, 2024)

Misleading. Reshoring attempts began under Biden, but US lacks skilled workforce.

At campaign rallies, Trump promised to lure foreign manufacturers to America with higher tariffs and tax breaks. But the reality is not so clear.

Manufacturing in the US has been on the decline for decades, now accounting for just 8 percent of the workforce, a steep decline from 30 percent in the 1970s. Automation, outsourcing and cost-cutting layoffs have shifted the landscape. Modern manufacturing jobs require advanced skills that many US workers simply don’t have.

Companies like Taiwan Semiconductor Manufacturing Co. have also struggled to find skilled labor in the US. The Taiwanese semiconductor titan reportedly delayed the opening of its Arizona chip factory from 2024 to 2025, citing a shortage of qualified workers. TSMC had to bring half of approximately 2,200 employees at its Arizona plant from Taiwan due to a lack of trained local workers.

Without US investment in labor training and education, the US market will remain unprepared, leading foreign companies to rely on their own employees. For Korean conglomerates, this uncertainty could lead to rethink of their ambitious expansion plans stateside.

My agenda will tax China to build up America. … I will implement a bold series of reforms to completely eliminate dependence on China in all critical areas. We will revoke China’s most favored nation trade status and adopt a four-year plan to phase out all Chinese imports of essential goods, everything from electronics to steel to pharmaceuticals. (Campaign Agenda 47)

Unlikely. Chinese technology advanced after trade curbs of Trump's first term.

Trump has vowed to “tax China to build up America” and cut reliance on Chinese goods in critical areas like electronics, essential goods and pharmaceuticals. But did his strategy of tariffs and sanctions during his first term slow China’s rise? The results are mixed.

While the initial restrictions disrupted some Chinese companies, they also spurred China to accelerate its push for technological self-sufficiency.

During Trump’s first term, a slew of export controls prompted China to invest in critical industries like semiconductors, electric vehicles, artificial intelligence and biotechnology. This was part of its ambitious “Made in China 2025” initiative to dominate cutting-edge technology.

Huawei led the charge, unveiling last year the Mate 60 smartphone powered largely by domestically produced components. It was hailed as a milestone for China’s semiconductor aspirations and a step closer to catching up with global competitors.

ChangXin Memory Technologies, a rising player in DRAM production, has also been scaling up. The company is projected to claim 15 percent of the global DRAM market in the coming years, according to Nomura Securities. It’s also moving toward mass production of high-bandwidth memory chips, essential for AI applications. While its capabilities in this area still trail industry leaders like Korea’s SK hynix and Samsung as well as Micron in the US, it is making rapid progress.

Experts caution that trying to stall China’s technological momentum may be futile. US Commerce Secretary Gina Raimondo has called export controls merely “speed bumps” on China’s path, describing the effort to hold back Beijing as “a fool’s errand” in an interview with The Wall Street Journal. Raimondo, who executed the Biden administration's chip policies, emphasized that the real key for Washington to outpace China lies in innovation.

"That chip deal is so bad. When I see us paying a lot of money to have people build chips, that‘s not the way. You didn’t have to put up $0.10, you could have done it with a series of tariffs." (On Joe Rogan podcast on Oct. 25, 2024)

Probably false. Prospect of switch to tarriffs has slowed factory expansion in US.

Trump has bashed the CHIPS and Science Act, which offers subsidies for setting up chip factories in the US.

Under the legislation, Samsung Electronics secured $4.745 billion in subsidies for its $37 billion advanced chip manufacturing expansion in Central Texas, while SK hynix was awarded $458 million for the company’s $3.87 billion advanced chip plants in Indiana.

Trump contends that higher tariffs, rather than subsidies, would do more to encourage companies like TSMC, Samsung and SK hynix to establish operations in the US by making chip imports pricier.

But early evidence casts doubt on this. Faced with the possibility that the US could switch from subsidies to tarriffs, chip companies have slowed their efforts to increase capacity there. And while tariffs could make imported chips more expensive, this will be offset to some extent by the low yield rate in US factories brought on by the skills shortage mentioned above.

In any case, there are legal obstacles. the CHIPS Act is bipartisan legislation that has already been enacted, making it difficult to simply withdraw from.

High tariffs could also affect raw materials used in production, ultimately driving up the cost of chips, even if they are manufactured in the US.

Tariffs on semiconductors themselves would likely raise costs for industries that dependent on them, from carmakers to tech companies. With the US producing only about 10 percent of the world’s chips -- and none of the most advanced chips -- tariffs on chips could wreak havoc on global supply chains.

Especially, high-tech industries, which rely on intricate international supply networks would especially be vulnerable as increased costs ripple through each stage of production. American tech giants like Nvidia and AMD, whose semiconductors mostly come from Taiwan and Korea, could feel the pinch on their profitability.

For Samsung and SK hynix, additional tariffs could exacerbate operational challenges, particularly as they grapple with squeezed profit margins. Such measures could raise questions about the long-term viability of their investments and operations in the US.

By Ahn Sung-mi (sahn@heraldcorp.com)