[Collapse of Trade Theory, New Supply Chain Era]⑥ "Avoided Tariffs, No Union Risks Either"… Companies Seeking Third Markets

The U.S. Is No Longer a Safe Haven: Growing Burdens for Companies
India, Eastern Europe, Southeast Asia... Diversifying Supply Chains in Emerging Markets
Lee Taegyu: "Read Structural Trends... Relocate with Caution"

Editor's NoteThe tariff war triggered by the 'Trump administration' is shaking the global supply chain. Since the launch of the World Trade Organization (WTO) in 1995, globalization, which had been sustained for 30 years based on low tariffs, has entered a decline. Instead, localization, which has emerged after the COVID-19 pandemic, is beginning to take hold as the new trend. In the past, 'optimal cost' was the top priority in building supply chains, but now minimizing supply risks has become the foremost priority for companies. Especially through two terms of the Trump administration, there is a trend of establishing production bases centered on the North American market. Korean companies are at a crossroads, wondering whether to overhaul their production strategies according to U.S. trade policies or to pioneer new markets. Asia Economy conducts an in-depth analysis in six parts on how our companies are responding amid the tectonic shifts in the global supply chain.

Sri City, located in Andhra Pradesh in southern India, is a region LG Electronics has earmarked as a new production complex, known for "avoiding tariffs and having no union risks." Establishing a new production line in India is the first in about 20 years since the completion of the Pune factory in 2006. Construction is scheduled to begin within this year, aiming for full-scale home appliance production starting in the first half of next year. Sri City is an economic special zone with excellent logistics infrastructure and various incentives for foreign investors, attracting global manufacturers' investments. LG Electronics plans to produce its main home appliances at the Sri City factory and expand its supply chain to the Indian and surrounding Asian markets. An industry insider analyzed, "LG Electronics' establishment of the Sri City factory is expected not only to target the Indian domestic market but also to serve as a global export base," adding, "They will actively utilize tax benefits and a favorable labor environment to further solidify their position in the Indian market."

Korean companies have been seeking optimal production sites to maintain cost efficiency as tariff burdens and trade barriers intensify, moving away from Korea. To respond to changes in U.S. trade policies, various regions such as U.S. trade surplus countries, Europe, Southeast Asia, and South America have emerged as alternatives. Each country is attracting companies by leveraging manufacturing bases, talent pools, and policy support, while companies are focusing on diversifying supply chains and investing in automation to enhance production efficiency. In the long term, adapting to the changing trade environment and securing sustainable competitiveness is becoming a core challenge.

"Find the U.S. 'Trade Surplus Countries.'"

Industry insiders are focusing on U.S. trade surplus countries as production bases. Countries such as Singapore, the Netherlands, Hong Kong, Brazil, Australia, and the United Kingdom are U.S. trade surplus countries. A senior executive from a large corporation said, "Countries with a U.S. trade surplus are good, but if we enter, their exports will increase, and tariff talks will arise again, so there is no safe zone." He added, "We must compete with 'irreplaceable technology' by fully automating, robotizing, and implementing automated systems even for our partners, so we can survive even if we enter the tiger's den." Even if production bases are relocated, companies must consider raw material procurement, logistics costs, and labor supply issues. Given the high possibility of prolonged trade friction with the U.S., companies are not simply relocating production lines but are also focusing on diversifying supply chains and adopting automation technologies to secure long-term competitiveness.

Building Production Bases by Demand, Europe on the Rise

Key trade hub countries connecting Asia and Europe, such as Poland and the Czech Republic, are also gaining attention. These countries have established manufacturing bases and a high level of science and engineering talent. Already, U.S. IT companies like Google have opened offices in Warsaw, and IBM also has offices there. German home appliance manufacturer Miele and automobile manufacturer Mercedes-Benz plan to build factories in Poland. The fact that these countries offer incentives to foreign companies is also an attractive factor for businesses.

Countries like Poland and Hungary are actively investing in high value-added industries such as electric vehicle batteries, automobiles, and electronics by offering corporate tax reductions and infrastructure support. Europe has recently emerged as a battery supply hub. Domestic companies in the battery sector are preparing supply chain designs targeting this market.

LG Energy Solution is pushing to build a factory with a maximum capacity of 45GWh near Ba?kent, close to Ankara, aiming for mass production in 2026. Samsung SDI also considered building an electric vehicle battery joint venture factory in Hungary in cooperation with BMW in 2023. Shin Won-kyu, a visiting research fellow at the Korea Economic Research Institute, said, "If the U.S. imposes tariffs on China and it escalates into retaliation, the European Union (EU) will reduce trade with the U.S. and China and relatively increase trade with Korea," suggesting that the U.S.-China hegemonic competition could lead to increased trade between Korea and the EU.

Southeast Asia: Cheap Labor? "Now an Incentive Country"

Southeast Asia is also rapidly emerging as an alternative supply chain location. In the past, companies entered Southeast Asia seeking cheap labor, but now it is an attractive market based on aggressive government-led industrial promotion policies. Indonesia, Vietnam, and the Philippines are considered the 'BIG 3' markets with a combined population of about 500 million. In the short term, industries such as semiconductors, automobiles, steel, and electric vehicles are gaining momentum, and in the mid-to-long term, general machinery, petrochemicals, and petroleum products are promising.

LS Cable & System is targeting the Southeast Asian power market centered on Vietnam. It has government incentives, a solid domestic market, and geographical conditions suitable as an export base. LS Cable & System is expanding its business into renewable energy such as wind power. In the battery industry, there is a forecast that if the tariff war leads to 'blockade' patterns of trade barriers between countries, there may be movements to relocate factories to emerging markets such as Southeast Asia and South America in the future.

In the short term, companies have no choice but to establish supply chains or business strategies centered on the North American market, but if instability such as the tariff war continues, supply chain diversification can be pursued. An industry insider said, "Electric vehicle penetration rates are low in Southeast Asia and South America, so sales volumes are not yet high," but added, "This can be interpreted as 'high growth potential,' and there is ample possibility for network expansion."

Cho Sung-dae, head of the Trade Research Office at the Korea International Trade Association, also named Singapore as a strong candidate for a production base. He said, "Although there are no concrete cases yet, there are talks that Singapore is trying to leverage the current (trade conflict) situation," adding, "Companies that invested in China and are looking for alternatives are positively considering Singapore." It was also reported that the Singapore government has actively engaged in behind-the-scenes efforts to attract companies.

Lee Tae-gyu, senior research fellow at the Korea Economic Research Institute, urged companies to establish cautious strategies for entering third markets. He advised, "The Trump administration is implementing tariff policies, but the government will change again in four years," adding, "To determine the need for new supply chains, companies should first adapt to Trump's policies and then read structural changes in the overall global economic trends."