Auto & Semiconductor Tariff Shock: Trump’s Trade War and the Crisis for South Korea’s Industries

1. Trump’s Tariff Onslaught Expands to Cars and Semiconductors

Former U.S. President Donald Trump has signalled the possibility of additional tariffs on cars and semiconductors, following previous duties on steel and aluminium. This move could deal a severe blow to South Korea’s export-driven economy. With semiconductors and automobiles being two of South Korea’s largest export sectors, the impact of these potential tariffs could be devastating.

The recent abolition of the tariff-free steel quota system further raises concerns that similar restrictions may soon hit the semiconductor and automotive industries. Urgent countermeasures are required to mitigate the potential damage.

2. Key Issues: How Will This Affect South Korea’s Economy?

• 25% Tariff on Steel Confirmed: Trump has finalised a 25% tariff on steel while abolishing the previous tariff-free quota system.
• Tariffs on Automobiles & Semiconductors Under Review: South Korea’s key export sectors may soon be subject to similar restrictions.
• A Repeat of Trump’s 2018 Trade Policy?: Back then, tariffs were imposed on steel and aluminium under Section 232 of the Trade Expansion Act.
• Exceptions for Trade Surplus Nations?: While Australia may be exempt due to its trade surplus with the U.S., South Korea’s status remains uncertain.
• Significant Impact on South Korean Exports: With semiconductors and automobiles comprising a substantial portion of South Korea’s exports to the U.S., tariffs could severely weaken the country’s competitive edge.

3. How South Korea’s Industries Should Respond

• Strengthen Trade Negotiations: The South Korean government must engage in aggressive negotiations to secure trade exemptions for key industries.
• Expand Alternative Export Markets: Reducing reliance on the U.S. by tapping into markets in Europe and Southeast Asia is crucial.
• Diversify Supply Chains: Korean firms should explore strategies to reduce dependence on U.S.-centric supply chains.
• Boost Technological Innovation & Efficiency: Developing high-value technologies and optimising production efficiency will be essential to offset tariff burdens.

4. Investment Strategies: Challenges and Opportunities in the Korean Economy

Investors must carefully analyse the situation and adjust their portfolios accordingly:

1. Manage Risks in Auto & Semiconductor Stocks: If tariffs are implemented, key exporters like Hyundai, Kia, Samsung Electronics, and SK Hynix may experience financial setbacks.
2. Focus on Firms with U.S. Manufacturing Presence: Companies such as Hyundai and Samsung, which operate production facilities in the U.S., may face less disruption.
3. Identify Alternative Market Leaders: Investing in global firms expanding into non-U.S. markets can be a strategic move.
4. Watch the Materials, Parts, and Equipment Sectors: South Korean suppliers of key components may benefit as domestic manufacturers seek alternatives to mitigate tariff costs.
5. Monitor U.S. Industrial Policy Changes: Trump’s ‘America First’ approach to manufacturing could drive inflation and supply chain disruptions, warranting close observation of market trends.

5. Conclusion: Surviving the Escalating Trade War

Trump’s tariff escalation poses a significant challenge not just for individual industries but for the broader South Korean economy. With semiconductors and automobiles in the crosshairs, both the government and private sector must swiftly implement countermeasures.

For investors, anticipating shifts in trade dynamics and adjusting portfolios to mitigate risks will be crucial. Companies with U.S.-based production facilities, firms expanding into alternative markets, and key players in semiconductor and automotive supply chains may present strong investment opportunities.

Ultimately, whether these tariffs serve as a short-term negotiation tool or reshape the global trade landscape depends on developments in the coming months. Staying ahead of market shifts and adopting a proactive strategy will be essential in navigating this volatile period.