Trump's Tariffs Aren't the Only US Policy Hurting South Korea's Economy
With the August 1 deadline for South Korea to strike a new trade deal with the United States rapidly approaching, Seoul's focus has been on minimizing the potential for significant tariff increases on Korean exports to the United States. However, shifts in regulatory and subsidy policy under the Trump administration are also negatively impacting Korean investments in the United States and should be a part of any negotiations.
Over the last three years, Korean firms have invested $114 billion in the United States. Centered in strategic areas such as semiconductors and clean energy, these are significant investments in U.S. manufacturing capacity. However, the Trump administration's turn against clean energy and related products has decreased the long-term potential of much of this investment.
Ironically, these regulatory shifts come at a time when Washington is reportedly pushing South Korea to create an outward investment fund to support manufacturing in the United States that could run into the hundreds of billions of dollars. In essence, Trump administration policy is devaluing current Korean investment, while demanding additional investment in the United States to avoid tariffs of 25 percent or more on Korean exports to the United States.
In some cases, these policies seemingly undermine Trump administration objectives. Restoring manufacturing to the United States has long been a priority for Donald Trump and has been touted by his administration. The administration has launched a wide range of Section 232 national security investigations focused on the impact of imports on domestic manufacturing and national security, presumably with the intention of addressing the decline in manufacturing in the United States through higher tariffs to incentivize domestic production.
The Trump administration has also made restoring U.S.energy dominance as a key goal for the administration but has sent conflicting signals. It initiated a Section 232 investigation into polysilicon, which is used in semiconductors and solar panels. A separate Section 232 investigation into semiconductors already covers some of the uses of polysilicon in semiconductor manufacturing, suggesting that the separate polysilicon investigation relates primarily to its usage in solar panels.
Expanding solar power as part of an energy security agenda would also support the administration's objective of maintaining the United States' dominance in AI. This will require significant new amounts of electricity production, with the International Energy Agency expecting AI data centers to account for half of the growth in electricity demand in the United States by 2030.
Nominally, the Trump administration's Section 232 investigation into polysilicon imports should be beneficial to Hanwha Q Cells, a Korean firm that manufactures solar panels in the United States. According to the International Energy Agency, China accounts for 93 percent of global manufacturing of polysilicon, making U.S. manufacturers dependent on Chinese sources of polysilicon for the production of solar panels.
Hanwha Q Cells is investing $2.5 billion to develop the sole U.S.-sourced supply chain for the production of solar panels in the United States, but has struggled to ease its dependence on China for polysilicon. OCI, another Korean solar manufacturer, is also working to develop a non-China solar power supply chain in the United States utilizing polysilicon from its facilities in Malaysia.
While the Section 232 investigation should help Hanwha Q Cells by incentivizing polysilicon production in the United States, there are more significant countervailing forces in U.S. policy that will negatively impact those investments. The Trump administration has introduced a new policy requiring a political review of new solar projects in the United States. Rather than being reviewed by lower-level staff, 68 different actions by the Department of Interior for the deployment of solar panels will now need to be personally approved by Secretary Doug Burgum. Because even projects not on federal land consult with the Interior Department to determine if their projects require permits or are in compliance with federal laws, this new policy has the potential to significantly slow the deployment of solar power in the United States.
The One Big Beautiful Bill also moved forward the phase out of solar power subsidies to require construction to begin by July 4 of next year or power to be produced by the end of 2027. The subsidies were originally scheduled to be in place until 2028.
Hanwha Q Cells and OCI are not the only Korean firms facing increasing pressure due to policy changes from the Trump administration. Over the last three years, about half of Korean investment into the United States has been in the EV battery sector. Those investments created over 20,000 U.S. manufacturing jobs. Yet these EV battery firms were already under financial pressure even before the removal of the Inflation Reduction Act's $7,500 tax credit under the One Big Beautiful Bill.
The financial pressure on Korean EV battery makers will increase with the slowing growth in demand for EVs following the removal of the consumer tax credit. This decline will also impact Hyundai, which just invested $12.6 billion to build its new Metaplant in Georgia to produce 500,000 EVs and hybrid vehicles per year across all of its brands.
The regulatory shifts under the Trump administration will only add to the increasing cost pressures manufacturers face from the various Section 232 and anti-dumping investigations on commodities, which will drive up the cost of producing goods in the United States. The proposed 50 percent tariff on copper will increase costs for producers of semiconductors, EVs, and consumer electronics. A new 93.5 percent anti-dumping tariff on graphite, a key material for making EV batteries, will also increase the costs of EV batteries. With reductions in subsidies and increasing regulatory barriers for these industries, production costs will increase will demand for their products will decline.
Trump promised a low regulatory environment to boost manufacturing in the United States and to help compensate companies for the new tariffs. That low regulatory environment to date only applies to industries favored by the Trump administration; in other sectors, new policies actually undermine existing manufacturing investments in the United States. Any new trade deal between the United States and South Korea needs to address the negative impact of policy changes on Korean firms to protect US manufacturing and encourage further Korean investment in the United States.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Nikkei Asia
44 minutes ago
- Nikkei Asia
Trump, EU's von der Leyen to meet on Sunday to clinch trade deal
GLASGOW, Scotland (Reuters) -- European Commission President Ursula von der Leyen is set to meet with U.S. President Donald Trump on Sunday to clinch a trade deal for Europe that would likely see a 15% baseline tariff on most European Union goods but end months of uncertainty for EU companies. U.S. and EU negotiators huddled in final talks on tariffs facing crucial sectors like cars, steel, aluminum and pharmaceuticals before the meeting, which is expected at 15:30 GMT on Trump's golf course in Turnberry, western Scotland. U.S. Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick flew to Scotland on Saturday, and EU Trade Commissioner Maros Sefcovic arrived on Sunday morning. Lutnick told "Fox News Sunday" that the EU needed to open its markets for more U.S. exports to convince Trump to reduce a threatened 30% tariff rate that is due to kick in on Aug. 1. "The question is, do they offer President Trump a good enough deal that is worth it for him to step off of the 30% tariffs that he set?" Lutnick said, adding that the EU clearly wanted -- and needed -- to reach an agreement. A separate U.S. administration official was upbeat that a deal was possible. "We're cautiously optimistic that there will be a deal reached," the official said, speaking on condition of anonymity. "But it's not over till it's over." The EU deal would be a huge prize, given that the U.S. and EU are each other's largest trading partners by far and account for a third of global trade. Ambassadors of EU governments, on a weekend trip to Greenland organized by the Danish presidency of the EU, held a teleconference with European Commission officials on Sunday to agree on the amount of leeway von der Leyen would have. In case there is no deal and the U.S. imposes 30% tariffs from Aug. 1, the EU has prepared countertariffs on 93 billion euros ($109 billion) of U.S. goods. EU diplomats have said a deal would likely include a broad 15% tariff on EU goods imported into the U.S., mirroring the U.S.-Japan trade deal, along with a 50% tariff on European steel and aluminum for which there could be export quotas. EU officials are hopeful that a 15% baseline tariff would also apply to cars, replacing the current 27.5% auto tariff. Some expect the 27-nation bloc may be able to secure exemptions from the 15% baseline tariff for its aerospace industry and for spirits, though probably not for wine. The EU could also pledge to buy more liquefied natural gas from the U.S., a long-standing offer, and boost investment in the United States. Trump told reporters there was "not a lot" of wiggle room on the 50% tariffs that the U.S. has on steel and aluminum imports, adding, "because if I do it for one, I have to do it for all." The U.S. president, in Scotland for a few days of golfing and bilateral meetings, told reporters upon his arrival on Friday evening that von der Leyen was a highly respected leader and he was looking forward to meeting with her. He said there was a 50-50 chance that the two sides could reach a framework trade pact, adding that Brussels wanted to "make a deal very badly." The EU now faces U.S. tariffs on more than 70% of its exports, with 50% on steel and aluminum, an extra 25% on cars and car parts on top of the existing 2.5% and a 10% levy on most other EU goods. EU officials have said a "no-deal" tariff rate of 30% would wipe out whole chunks of transatlantic commerce. A 15% tariff on most EU goods would remove uncertainty but would be seen by many in Europe as a poor outcome compared to the initial European ambition of a zero-for-zero tariff deal on all industrial goods. Seeking to learn from Japan, which secured a 15% baseline tariff with the U.S. in a deal earlier this week, EU negotiators spoke to their Japanese counterparts in preparation for Sunday's meeting. For Trump, aiming to reorder the global economy and reduce decades-old U.S. trade deficits, a deal with the EU would be the biggest trade agreement, surpassing the $550 billion deal with Japan. So far, he has reeled in agreements with Britain, Japan, Indonesia and Vietnam, although his administration has failed to deliver on a promise of "90 deals in 90 days."
NHK
5 hours ago
- NHK
Trump in Scotland, set to talk with EU, British leaders on tariffs
US President Donald Trump is staying at a golf resort in Scotland owned by his family's business. He is expected to hold talks with EU and British leaders on tariffs. Trump has been in Scotland since Friday. On Saturday, he was seen playing golf and driving his own golf cart, as local police maintained tight security in the area. Trump said he plans to meet with European Commission President Ursula von der Leyen on Sunday to discuss what he calls "reciprocal tariffs." He has suggested that he would levy a 30-percent tariff on products coming from the European Union, starting on August 1. Trump is also due to meet with British Prime Minister Keir Starmer during his stay. British media say the two will discuss reducing additional tariffs on UK-made steel products, a topic they have continued to negotiate, among other things. People in Scotland held rallies in several places to protest against Trump's political moves and other matters.
Japan Times
6 hours ago
- Japan Times
The Fed needs to tread carefully with this strange dollar
The U.S. economy hasn't seen tariffs like these in around 80 years. Given the lack of recent precedent, the Federal Reserve is right to wait on more evidence that consumer prices aren't spiking before proceeding with interest rate cuts. There's another reason to tread carefully in these uncertain times: The extremely unusual behavior of the U.S. dollar. Many economists — including Council of Economic Advisers Chair Stephen Miran — expected the buck to strengthen when U.S. President Donald Trump implemented tariffs. In an essay published last November, Miran wrote that the exchange rate was "more likely than not' to appreciate alongside an improving trade balance, as it did during Trump's first trade war in 2018 and 2019. The so-called currency offset was critical to his view that the new duties wouldn't necessarily be passed through to consumers, at least not entirely. Treasury Secretary Scott Bessent made the same point during his confirmation hearings. Bafflingly, the dollar actually weakened for reasons that are still hotly debated (more on that shortly.) The U.S. dollar Index has declined by 6.8% since just before the "Liberation Day' tariffs unveiled on April 2 and it's down about 10% in 2025, the worst year-to-date performance in at least a quarter century. The median forecaster surveyed by Bloomberg expects the greenback to depreciate further over the next year or so. All else equal, you might expect the upward pressure on U.S. consumer prices to be even worse than tariffs alone would suggest. In the past, for a given move in developed nation currencies, economists have identified long-run pass-through into import prices on the order of 60%. (Estimates were around 40% for the U.S. specifically.) But pass-through is highly context-dependent and all else is never equal. So far, measures of consumer inflation remain relatively tame, either because the transmission will take time to materialize; retailers are "eating' the higher costs in the form of narrower margins; or because the doomsayers were just plain wrong. Realistically, it could even be some combination of the three. Given that range of possibilities, it's prudent to wait for the data to tell the story, exactly as Fed Chair Jerome Powell is currently planning. This is much to the chagrin of Trump, who regrettably insists that he can have tariffs and expeditiously lower policy rates too. In an ill-advised effort to get his way, he's exerting extraordinary public pressure on the independent central bank and its outgoing chair. So why is the dollar weakening in the first place? In the heat of the April selloff, many of us interpreted it as a sign of cracks in America's "exorbitant privilege.' The idea was that the U.S. — with the world's deepest and most liquid markets — had long occupied a special place at the center of the global financial system. That special status meant that we probably had a slightly stronger currency and relatively lower borrowing costs than would otherwise have been the case. When the the dollar weakened alongside rising borrowing costs after April 2, an argument advanced in market commentary and academia was that haphazard policymaking was eroding the American brand in the eyes of the world. Another somewhat related argument was tied to capital flows. At the time of the tariff announcement, investors around the world were extremely exposed to U.S. equities, thanks in part to the remarkable outperformance of the U.S.'s mega-cap growth stocks, known as the Magnificent 7. From the start of 2020 until March 2025, the S&P 500 Index had outperformed the rest of the developed world's equity markets by more than two-to-one. Global investors had piled into the stocks to get a piece of the action, often through unhedged positions. The hasty unwind of some holdings briefly created a macroeconomically significant wave of outflows. Plausible as these theories may be in explaining that wild week or so in early April, it's far from clear that the narratives around cracks in U.S. exorbitant privilege and equity outflows are still reasons to bet against the dollar going forward. As far as the former is concerned, America's brand may suffer additional damage from Trump's overt threats to Fed independence. But we're talking about a very nuanced change: a move from an extraordinarily special status in global markets to just very special. In practice, there's still no viable alternative to U.S. debt and its currency. European debt markets lack our market depth and China lacks our transparency, while Bitcoin is as volatile as a tech stock. Meanwhile, a solid streak of Treasury auctions has more or less ended the debate about caution among overseas investors. In the U.S. equity market, the panic is in the rearview mirror. Since bottoming on April 8, the S&P 500 has returned to all-time highs and is again outperforming the rest of the developed world's markets. The story isn't over, though. While the dollar hasn't weakened much more from its April lows, the durability of the move makes it more likely that currency weakness will have a meaningful impact on the economy, including consumer prices. In recent weeks, the greenback seems to have resumed its typical correlation with Treasury yields, opening the door to further declines if markets begin to price in significant rate cut expectations. That's why the Fed needs to proceed with extreme caution. Policymakers shouldn't lower borrowing costs and implicitly weaken the exchange rate until they can be sure that higher consumer prices aren't already in train. Without question, they should hold rates at their July meeting and the inflation data would need to stay quite tame to justify a cut at the subsequent meeting in September, at least in the absence of a labor market deterioration. The tariff experiment, coupled with the shock exchange-rate reaction, is an event study unlike any other in recent memory and the stewards of stable prices can't take anything for granted. Even if prices do jump, it's still possible that the uptick won't lead to a lasting increase in the rate of inflation and the Fed can eventually get on with easier monetary policy. But at this point, the responsible option is to wait and see how it plays out in the data. Jonathan Levin is a columnist focused on U.S. markets and economics. He is a CFA charterholder.
