Winners & losers: S.Korean industries navigate uneven US tariff terrain

From a shipbuilding boon to steel-sector gloom, South Korea’s export-reliant industries face diverging paths after Seoul struck a tariff deal with Washington on Thursday to lower sweeping US duties on Korean imports from 25% to 15%.

It is no secret that South Korea’s offer to launch a $150 billion shipbuilding fund played a key role in sealing the last-minute agreement between the two nations.

The fund will be primarily used to revive the US shipbuilding industry under the Make American Shipbuilding Great Again, or MASGA, project proposed by South Korea.

The program will focus on building shipyards in the US; training local shipbuilding employees; strengthening the US shipbuilding supply chain; and expanding vessel maintenance and repair operations.

While the initiatives are designed to restore the competitiveness of the US shipbuilding industry, they are also expected to provide a significant opportunity to South Korean shipbuilders to expand in the US.

SUNNY OUTLOOK FOR KOREAN SHIPBUILDERS

Of the $150 billion fund, a majority will be financed through South Korean government-backed guarantees and loan programs, supported by state agencies such as the Export–Import Bank of Korea and the Korea Trade Insurance Corp.

This means that when a Korean shipbuilder acquires a local shipyard in the US, it will contribute a relatively small portion of the investment, while state-run agencies will fund the bulk via loans and guarantees.

Using this fund, South Korea’s major shipbuilders – HD Hyundai Co., Hanwha Ocean Co. and Samsung Heavy Industries Co. – are expected to build new shipyards in the US or acquire existing ones in the country.

Given that most US shipyards have remained idle for years, Korean shipbuilders are expected to invest heavily in rebuilding the infrastructure of any local shipbuilders they will buy later.

This expansion will likely open the US market for Korean-made shipbuilding materials, parts and equipment.

“The (South Korea-US shipbuilding) partnership will span the entire shipbuilding ecosystem – from vessel construction to MRO, as well as the shipbuilding equipment and materials sector,” Kim Yong-beom, South Korea’s presidential chief of staff for policy, said at a press briefing on Wednesday.

HD Hyundai and Hanwha Ocean are both expected to pursue new dockyard projects or acquisitions in the US.

Hanwha Ocean has already acquired Philly Shipyard, now Hanwha Philly Shipyard, for $100 million last December.

It is also seeking management control of Austal Ltd., an Australian shipbuilder, in which it holds a 9.9% stake. Headquartered in Australia, Austal also operates shipyards in Alabama and California.

HD Hyundai, parent of the world’s largest shipbuilder, HD Hyundai Heavy Industries Co., is reportedly considering acquiring a US shipbuilder or setting up a joint venture with a local shipyard.

Under the MASGA project, Korean shipbuilders are also expected to expand their presence in the US vessel maintenance, repair and overhaul (MRO) business, including potential work on combat ships.

PARTLY CLOUDY FOR KOREAN AUTOMAKERS

As part of the new agreement, the US has cut sectoral tariffs on Korean cars to 15% from the previous 25%.

The Korean auto industry welcomes the reduction, which at least matches those imposed on cars imported from Japan and the European Union.

“The US is the Korean cars’ key market, accounting for more than 50% of Korea’s total car exports,” said the Korea Automobile Manufacturers Association (KAMA). “The new trade deal eliminates uncertainty and creates a level playing field for Korean cars competing with Japanese and European cars in the market.”

With the lowered tariff, Hyundai Motor Co. and Kia Corp. are expected to save more than 3 trillion won ($2.1 billion), cutting their total US duty burden to 5.61 trillion won, according to Korea Investment & Securities Co.

Still, the new rate falls short of South Korea’s initial target of 12.5%, analysts said, raising concerns that Korean cars will face steep competition from Japanese and European cars in the US due to diminished price advantages.

Previously, Korean cars benefited from zero tariffs under the US-South Korea free trade agreement, while Japanese and European vehicles were subject to 2.5% duties, giving Korean models a price advantage.

Now, with a uniform 15% tariff across the board, that edge is lost, analysts said.

Of the total 1.71 million units Hyundai Motor and Kia sold in the US in 2024, 1 million cars were shipped from South Korea. The remaining 42% were produced at local plants in Alabama and the US state of Georgia.

By contrast, Toyota Motor Corp. and Honda Co. produce 55% and 72% of their total US sales locally, respectively, allowing them to sell more vehicles without levies.            

As European cars for export center on luxury brands such as BMW, Mercedes-Benz and Audi, it is easier for them to absorb higher tariffs due to higher base prices. BMW and Benz also produce most of their popular sport utility vehicles (SUVs) in the US.

Hyundai Motor Group’s luxury marque Genesis manufactures only the GV70 model in the US, while all others are shipped from South Korea.

“Hyundai and Kia will face the new sectoral tariff on around 500,000 exported vehicles, each,” Hyundai Motor Securities Co. said in a report. “Every 1% increase in import duty reduces each company’s profit by approximately 150 billion won.”

Analysts said Korean carmakers must respond by cutting raw material costs, increasing local production and adjusting incentives to protect profitability.

“We will take various measures to minimize tariff impact while enhancing product quality and brand value through technology innovation,” said an official from Hyundai Motor Group.

BLUSTERY FORECAST FOR KOREAN STEEL

South Korea’s steelmaking industry is also uneasy about the latest US-South Korea trade deal, which leaves sectoral tariffs on steel and aluminum unchanged at 50%.

Industry leaders had hoped to negotiate tariff-free export quotas, similar to those granted to the EU, but such provisions were not included.

With a steep 50% duty, Korean steelmakers are now being forced to diversify from the US, which has been their biggest export destination.

In 2024, Korean steelmakers, including POSCO and Hyundai Steel Co., exported a combined 2.76 million tons, or worth $4.7 billion, of steel materials to the US.

But following the imposition of the 50% duties on Korean steel products in June, their demand has nearly depleted in the US due to reduced price competitiveness. Korean hot-rolled steel is now priced at over 1.3 million won per ton versus an average of 1.2 trillion won for US-made steel in the US. In Korea, the same steel sells for 830,000 won per ton.

Korean steel exporters now face competition from the EU and Mexico, which are expected to enjoy partial exemptions on their shipments.

Japanese steel has also been slapped with 50% tariffs, but the world’s fourth-largest steelmaker, Nippon Steel Corp., has acquired US Steel Corp, giving it a local production foothold.  

Korean steelmakers are now pinning their hopes on a potential summit between US President Donald Trump and South Korean President Lee Jae-myung for a possible last-minute change in steel tariffs.

EASED UNCERTAINTY FOR CHIP EXPORTS  

US Commerce Secretary, Howard Lutnick, said in a social media post that South Korea would “not be treated any worse than any other country on semiconductors and pharmaceuticals.”

His comment has raised hopes that South Korean chips will face tariffs in line with those applied to Japan and the EU.

The US pledged zero tariffs on EU-made semiconductors and the lowest rates on Japanese chips.

While this eases uncertainty, Korean chipmakers remain cautious ahead of a Section 232 ruling in mid-August, which will determine final tariffs on chip imports, likely 15%.

“The US market accounts for about 8% of total Korean chip exports,” said a report from Hyundai Motor Securities. “If a sectoral tariff is applied, it would be inevitable for Korean chipmakers to hike their memory chip prices by about 15%.”

This could lead to lower profitability for their US-bound memory chips.

SK Hynix Inc. and Samsung Electronics Co., the world’s top two memory chipmakers based in South Korea, hope the US artificial intelligence drive, in which Korean chips play a critical role, will work in their favor.

Higher memory prices would also raise costs for US AI chipmakers, which rely heavily on Korean components.

PHARMA FIRMS EYE US PLANTS TO DODGE TARIFFS

The US is widely expected to impose a 15% tariff on foreign pharmaceuticals.  

In response, Korean pharmaceutical companies, including biosimilar producers and contract drug manufacturers, are seeking to acquire local plants in the US to mitigate tariff exposure.

Earlier this week, Korea’s biosimilar giant Celltrion Inc. said it is closing in on a deal to buy a biologic manufacturing plant in the US to locally produce nearly all of its flagship biosimilars for the world’s largest pharmaceutical market amid mounting tariff concerns.

Write to Sookyung Seo at skseo@hankyung.com

Jennifer Nicholson-Breen edited this article.