[Tariff Second Half] Despite MFN Pledge... Concerns Over Pressure for Local Investment

Semiconductor Industry Remains on Edge Despite Tariff Agreement
Burden of 'New Tariffs' Persists Even With Most Favored Nation Status
Pressure for Local Investment Likely to Continue, Linked to CSA
Samsung and SK Hynix Unavoidably Expanding Investment in the U.S.

Although South Korea and the United States have reached an agreement on tariff negotiations, granting South Korea Most Favored Nation (MFN) status for semiconductor product tariffs, concerns within the industry persist. While immediate short-term impacts may be limited, there is analysis that, from a medium- to long-term perspective considering President Donald Trump's term, ongoing pressure for local investment and geopolitical risks will continue.

According to the semiconductor industry on August 1, even after the government's announcement that South Korea will receive MFN treatment in future U.S. product-specific tariff decisions, major companies remain highly attentive to specific tariff rates and application conditions. An industry official stated, "Even if we receive better treatment than other countries, it still means the introduction of tariffs that did not exist before," adding, "There are various variables such as supply chain structure and rules of origin, which are more complex than just the tariff rate, so concerns remain ongoing."

The general assessment is that U.S. tariff policy has a structural nature, as it is intertwined with the U.S.-China hegemony competition and the United States' strategy to reorganize its domestic industry. This means it is unlikely to end as a one-off issue aimed at adjusting the trade balance; rather, there is a high possibility that continuous and structural policies will be implemented to pressure South Korean export companies.

The most realistic concern that has emerged is the 'pressure for local investment.' Major companies such as Samsung Electronics and SK Hynix have already invested billions of dollars to establish production bases in the United States. The problem is that President Trump is making the expansion of local production and investment a condition for tariff reductions. A semiconductor industry official said, "While some risks from tariffs can be managed, we expect that pressure to invest, linked to measures such as the CHIPS and Science Act (CSA), will continue," and added, "Even if we have technological competitiveness, if we do not expand local investment, we may face barriers in the U.S. market."

Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol is arriving in the United States through Dulles International Airport near Washington DC on the 29th (local time). Photo by Yonhap News

Indirect exports are also not free from uncertainty. High Bandwidth Memory (HBM) and Compute Express Link (CXL) DRAM, which is considered a next-generation technology, are structurally 'supplier-dominated' markets. This is because the companies capable of supplying these chips are limited to Samsung Electronics, SK Hynix, and Micron. In particular, most semiconductors destined for the U.S. are routed through third countries such as Taiwan and Mexico. Rather than South Korean companies directly bearing the tariffs, the costs are typically passed on to end customers in the U.S. market. This is why it is expected that the immediate impact of tariffs will be limited.

A senior official in the semiconductor industry stated, "In the case of HBM, most exports are routed through Taiwan and then Mexico, so the actual burden is considered minimal," and added, "If semiconductor tariffs are raised, the prices of parts and finished products will increase in succession, ultimately leading to higher consumer prices in the United States." The official continued, "From President Trump's perspective, imposing semiconductor tariffs would also negatively impact the midterm elections, so the political benefit is low."

However, there are concerns that even this indirect export structure could be shaken by geopolitical variables such as the 'move to strengthen rules of origin.' For example, China, amid ongoing trade conflicts with the United States, recently decided to determine the country of origin for imported semiconductors based on the wafer (substrate) manufacturing country rather than the packaging plant. Some fear that the United States, in an effort to block the inflow of high-performance chips to China, may arbitrarily interpret rules of origin and impose so-called 'forced tariffs.'

As a result, it appears that the burden on South Korean companies will continue to grow. Samsung Electronics and SK Hynix are not ruling out additional investments, but there is a prevailing sentiment that it will be difficult unless performance is guaranteed.

In the case of Samsung Electronics, the company plans to produce the next-generation autonomous driving AI chip 'AI6,' recently ordered by Tesla, at its Taylor plant in the United States starting next year. Once the Taylor plant is fully operational, there will be more capacity to expand capital expenditures (CAPEX). During its second-quarter earnings conference call the previous day, Samsung Electronics stated, "We are closely monitoring the results of the Section 232 investigation under the Trade Expansion Act regarding semiconductors and related products, which are expected to be announced in mid-August," and added, "This year's plant investments will be executed within the existing CAPEX, but CAPEX investment will increase in preparation for the operation of the Taylor plant in the United States next year."