As a candidate and now as president, Donald Trump has engendered alarm in the South Korean government and its business community, much as is the case with Japan. This is because his policies could seriously affect Korean firms invested or planning to pour additional funds in the United States, exporting directly or indirectly (e.g., through Canada) to the U.S., participating in South Korea-U.S. economic security cooperation initiatives, having close ties to China, or embroiled in troublesome dealings with American companies in South Korea. The richness and importance of bilateral economic ties and the broader South Korea-U.S. economic and security partnership warrant a closer look at these generally undertreated issues and ways for Korean business to respond.
One threat that has gotten appropriate attention is the likely U.S. retreat from the Inflation Reduction Act (IRA), which has encouraged, among other things, Korean electric vehicle (EV) and electric battery investment in the U.S., as well as the CHIPS and Science Act, which has supported Korean semiconductor-related investment in the United States. Regarding the IRA, the issue is that the new U.S. administration has paused disbursement of funds appropriated under the act via an executive order. As for the CHIPS Act, the worry is that Trump will terminate, freeze, or claw back loans and grants.
Korean executives have made clear these programs are crucial drivers of South Korean foreign direct investment (FDI) in the United States. The IRA and the CHIPS Act have spurred talk of $54 billion in EV and battery FDI by major Korean players such as LG Energy Solution, SK On, and Samsung SDI. They also have stimulated tens of billions of FDI in semiconductor-related facilities by Korean firms like Samsung Electronics and SK Hynix.
Driving the aforementioned anxieties is Trump and team members such as Energy Secretary nominee Chris Wright’s dislike of EVs and subsidies, economic nationalism, fondness for fossil fuels, nuclear energy, and gas-powered vehicles, and love of tariffs as an FDI “incentive.”
Trump’s plans to boost tariffs massively on China and significantly on American allies and partners such as South Korea, Canada, and Mexico are highly threatening to Korean businesses in South Korea and foreign locales, including the United States. After all, they have invested notable sums into such countries to lower their production costs, tap into supply chain clusters, and jump trade walls.
Furthermore, Trump and his administration may revisit the two countries’ most important bilateral economic agreement; that is, the Korea-U.S. Free Trade Agreement (KORUS), which covers trade, FDI, and other economic issues. Indeed, Trump previously criticized KORUS and threatened its cancellation. Of note, the mentor of Trump’s U.S. Trade Representative (USTR) appointee Jamieson Greer, former USTR Robert Lighthizer, who played a key role in renegotiating KORUS in 2018, has expressed dismay with the agreement’s results several times.
South Korea and the U.S. have been partnering in many economic security areas under bilateral and multilateral auspices. Collaborative ventures involve government, industry, and academic representatives and focus on issue areas like high tech, critical minerals, and energy security. Examples in the first area include the Korea-U.S. Advanced Industry and Technology Cooperation Forum, the U.S.-Korea Supply Chain and Commercial Dialogue, and the U.S.-Korea Semiconductor Forum. In the second area, South Korea and the U.S. have an early warning system for supply chain disruptions and are cooperating on critical minerals. They also collaborate through the multi-nation Minerals Security Partnership (MSP), which promotes private and public investment in critical mineral supply chains. As for the third area, Korea and the U.S. have an energy security policy dialogue and regularly discuss cooperation in and the prioritization of areas such as clean energy supply chains, lithium-ion battery recycling, and nuclear energy. As well, billions in U.S. Department of Energy loans have been awarded to South Korean companies or joint Korean-U.S. ventures or battery plants.
It is likely that South Korea and the United States will continue to cooperate in these areas. However, given that Trump is not a fan of either multilateralism or institutionalized arrangements, is opposed to subsidies, and insists on U.S.-based manufacturing, it is probable the aforementioned partnerships will atrophy or be eliminated or downsized.
While his economic policy toward China seems less certain than it once was, the sentiment that Trump and most of his coterie – Vice President J.D. Vance, Secretary of State Marco Rubio, National Security Adviser Mike Waltz, USTR nominee Greer, and so on – are China hawks is widespread. This means they are likely to pressure Korean companies, especially those in the realm of high-tech, to restrict or terminate dealings with China. This is a serious matter given the breadth and depth of China-South Korea investment, trade, and other economic ties. This said, U.S. decoupling policies toward China have benefits for Korean firms, too. For instance, U.S. efforts to limit dealings with Chinese firms such as CATL and Tencent open avenues for South Korean businesses to capture market share, invest, and showcase their high-tech and manufacturing capabilities.
Yet another concern for Korean businesses competing against or facing disadvantageous dealings with U.S. high-tech companies is the Trump administration’s likely opposition to South Korean regulation of American high-tech businesses such as platform and social media companies. Greer previously slammed Korean online platform regulations, deriding them as a “threat to the trade relationship between the two countries.”
South Korean companies have adopted a mix of political and business tactics to adapt to the threatening environment described above. On the political front, they have attempted to curry favor by making gestures such as donating to Trump’s inaugural fund. They also have been making managerial and staffing decisions that can improve connections with the new U.S. government. For instance, Hyundai Motors boldly promoted an American to CEO rank. On the business front, they are reconsidering their investment plans in the U.S., Canada, Mexico, and elsewhere. Korean companies also are ramping up investment at home to enhance their competitiveness.
These are sensible moves, but they are not enough. Korean companies need to leverage their presence in U.S. red states, which presumptively have the ear of Trump or his circle. They also need to find ways to connect with Rubio and United Nations Ambassador appointee Elise Stefanik, both of whom have expressed positive views about the South Korea-U.S. relationship. This said, there should not be excessive stress on South Korea’s role as an American security partner given that Trump feels Seoul is not paying its fair share.
Korean firms and their government representatives should find ways to increase investment in areas like critical minerals that the U.S. prioritizes, to boost cooperation in areas of great interest to Trump and his team such as infrastructure, nuclear power, and shipbuilding, and to increase separation from China. It is imperative, too, for Korea firms to expand economic interactions with other countries and companies, reconsider the geographic distribution of their FDI, and become more efficient and innovative.
The South Korea-U.S. economic partnership stands at a crossroads now that Trump is occupying the White House. The path forward for Korean companies will be hard to navigate given all the challenges, uncertainties about what exactly Trump will do, and domestic political instability within South Korea. Regardless, Korean companies cannot afford to stand still. It is essential they embrace a proactive rather than a reactionary approach to avoid the debilitation, discharging, and devitalization that may flow from Trump 2.0.