January 21, 2025
SEOUL – As Donald Trump returns to the White House for a second term, South Korean conglomerates are buckling up to navigate a potentially turbulent economic landscape.
With promises of wide-ranging tariffs, renegotiation of trade deals and possible adjustments to key Biden-era policies, such as CHIPS and Science Act and the Inflation Reduction Act, South Korea’s export-driven companies may face significant challenges in the all-important US market.
What do these changes mean for chaebol like Samsung, SK, Hyundai and LG that have vast businesses spanning from semiconductors, cars, batteries and appliances, and have collectively invested billions of dollars in the world’s largest economy over the past few years?
The possibility of Trump imposing tariffs and rolling back chip subsidies is causing headaches for Samsung Electronics and SK hynix, the world’s top two memory chipmakers.
Under Biden’s signature CHIPS Act, Samsung committed $37 billion to expand its chip facilities in central Texas, which includes two new logic fabs as well as a research and design facility in Taylor, and expansion of an existing Austin plant. In return, Samsung was awarded $4.745 billion in subsidies by the US government.
Meanwhile, its smaller crosstown rival SK hynix pledged $3.87 billion to build an advanced chip packaging plant and an R&D center in West Lafayette, Indiana. In return, it was awarded $458 million in direct funding, as well as up to $500 million in loans.
However, Trump has bashed the CHIPS Act as being “so bad” on the campaign trail, claiming that higher tariffs, rather than subsidies, might push chipmakers to establish operations in the US by making imports pricier.
Industry experts believe it would be difficult for Trump to repeal entirely the bipartisan act due to its significant benefits to Republican strongholds, including Texas, Indiana and Arizona –- where Taiwan’s TSMC is building plants. However, the new president could theoretically reduce, delay or block subsidies, or try to renegotiate some terms of the act, impacting future investments by Samsung and SK.
Notably, Samsung’s investment has already been reduced from the $44 billion the chipmaker initially pledged, which industry sources cite as concerns about profitability and uncertainty following the Trump administration.
“Abolishing the act would be difficult, but Trump could adjust subsidies, delay payments or require additional investments,” said Kim Yang-paeng, a researcher at the Korea Institute of Industrial Economics and Trade. “Korean companies must be prepared for various scenarios.”
Park Jung-hyun, a partner at Lee & Ko, at a recent forum said the CHIPS Act could be modified to favor US-based companies and domestic supply chains, limiting benefits for foreign entities.
Tariffs are another major concern. Trump said he would impose a 60 percent duty on all imports from China and even floated a blanket 10-20 percent tax on goods from other countries.
Although Washington’s primary focus is on Beijing, these tariffs could adversely affect Korean companies’ global operations and chip away at their profits. Should Samsung and SK’s memory chip manufactured in China be subjected to these tariffs, they could lose their price advantage against American chipmakers like Micron.
According to KIIET, blanket 10-20 percent tariffs on Korean imports and 60 percent tariffs on Chinese goods, including those produced by Korean firms in China, could result in a 4.7-8.3 percent decrease in semiconductor exports.
Kim emphasized the urgency of staying alert to Trump’s China policy, warning that tighter restrictions could impact Korean manufacturers that rely on the world’s second-largest economy for the bulk of their chip production.
Samsung produces about 40 percent of its NAND flash chips at its facility in Xian and operates a packaging facility in Suzhou. Meanwhile, SK hynix manufactures approximately 40 percent of its DRAM chips in Wuxi and 20 percent of its NAND flash chips in Dalian, in addition to running a packaging factory in Chongqing.
The Trump administration, which will likely continue a harder line on Bejing, could potentially ban the export of advanced chip equipment to China. Currently, Samsung and SK benefit from “validated end-users” status, which allows them to supply US chip equipment to their China factories without separate approvals.
But this privilege may be at risk under the trade tensions, which would impact the operations of Korean chipmakers that rely on American equipment for production.
Trump’s potential tariff plan could deal a significant blow to the profitability of Hyundai Motor Group in the US.
The US is Hyundai and Kia’s largest single market outside Korea, where the carmakers sold a record 1.7 million cars last year, contributing to about 20 percent of the auto giant’s global sales. However, with roughly half of these vehicles shipped from Korea, a sweeping 10-20 percent tariff on all exports would lead to raising prices, dampening the competitiveness and demand for Korean cars in this crucial market.
Currently, tariffs on autos and auto parts are mostly exempted between the two countries under the KORUS FTA. However, Trump’s fixation on slashing the US trade deficit — $51.4 billion with Seoul last year –- puts this exemption in jeopardy. Given that auto exports comprised 26.8 percent of Korea’s total exports to the US last year — the largest share across all sectors –- potential tariffs are a threat not only to the carmaker but to Korea’s economy overall.
Different forecasts paint a grim outlook. KIIET estimates a 5.9-13.6 percent fall in car exports to the US if tariffs are imposed. Meanwhile, S&P Global projects a steep 19 percent decline in EBITDA for Hyundai and Kia under a universal 20 percent tariff.
Compounding these challenges, a proposed 25 percent duty on Mexican imports would impact Kia’s Mexican operations, which annually supply about 150,000 vehicles to the US, representing 18 percent of its US sales.
The threat of tariffs also raises concerns for Hyundai’s auto parts affiliates, Hyundai Mobis, Hyundai Transys and Hyundai Wia, which have established facilities in Mexico to serve the North American market. LG Innotek, a components affiliate of LG Group, is not an exception as it plans to complete the expansion of its plant in the country, which manufactures camera modules, motors and sensors for cars.
The auto industry’s situation is further complicated by the Inflation Reduction Act, which offers tax credits of up to $7,500 for US-produced EVs and batteries. To capitalize on these incentives, Hyundai has invested $12.6 billion in a new EV and battery plant in Georgia, its largest investment outside of Korea.
Yet, with the looming possibility of Trump scrapping the bill, coupled with slower-than-expected consumer uptake of EVs, Hyundai had to pivot its strategy towards hybrid vehicles.
The new Georgia plant, originally dedicated to EV production, will now include both EVs and hybrids. The carmaker is also ramping up hybrid production at its existing Alabama plant and Kia’s facility in Georgia, in response to adapt to market demands.
Trump’s potential reversal of green energy policies could stifle EV adoption in the US, delivering a heavy blow to battery makers, the profits of which are closely tied to the tax incentives under the IRA.
South Korea’s major battery firms, LG Energy Solution, Samsung SDI and SK On are already bracing for the fallout, having committed to build a combined 15 manufacturing facilities in the US, half of which were announced after the IRA came into effect.
The IRA’s Advanced Manufacturing Production Credit, which provides a $35 tax credit per one kilowatt-hour for battery cells and a $10 tax credit per one kWh for battery module produced, has spurred battery makers to pour billions of dollars to expand their US footprint.
However, a rollback could severely slash profit margins, as the battery industry is already grappling with falling prices and weakening demand.
From January to September last year, the three companies raked in 1.37 trillion won ($939 million) in AMPC credits, with LG Energy Solution taking the lion’s share at 1.1 trillion won, followed by SK On with 211.1 billion won and Samsung SDI with 64.9 billion won. During that period, LG Energy Solution would have posted an operating loss without the incentive and SK On remained in deficit even with the subsidy. Samsung SDI, which is less dependent among the three from the AMPC, was the only firm logging profit during the same period.
But the fourth quarter appears to be even more gloomy. LG Energy Solution posted an operating loss of 225.5 billion won in Q4, which would have ballooned to 602.8 billion won without the AMPC. Analysts predict similarly bleak quarters for SK On and Samsung SDI, with estimated losses of 200-300 billion won and 100-200 billion won, respectively.
“The battery industry is the most concerning,” said Kim Pil-su, an automotive engineering professor at Daelim University. “Firms made long-term investments banking on US tax credits, but under Trump, the EV market could contract, reducing demand for batteries.”
To navigate these uncertainties, battery makers may need to pivot, diversifying into energy storage systems and other markets beyond EV batteries, Kim noted.
With the possibility of there being changes, Korean chaebol leaders have been ramping up efforts to expand their contact with the Trump administration to manage risk.
Hyundai Motor Group has donated $1 million to the inauguration, marking the first time for a Korean automaker to do so. Group Chairman Chung Euisun is reportedly seeking a bilateral meeting with Trump following his inauguration.
While Samsung, SK and LG have not publicly disclosed their involvement in the inauguration, they are also reportedly engaging in behind-the-scenes discussions with Trump’s team through their overseas public affairs staff. These major conglomerates have strategically appointed top brass who have experience working with the US government in recent personnel reshuffles to bolster their American ties.