Korean Petrochemical and Battery Industries Hit by Mutual Tariff Bombardment... "Performance Deterioration Inevitable"

Triple Burden of Low-Price Flood, Tariff Costs, and Upstream Industry Contraction
"Expectations for Full-Scale Operation of U.S. Production Bases"

U.S. President Donald Trump’s announcement on the 2nd (local time) of a 25% reciprocal tariff is expected to deliver a direct blow to South Korea’s petrochemical and battery industries. This is because these sectors are already struggling with poor performance due to the flood of low-priced Chinese products and weak demand, and now face the double burden of tariff costs and contraction in upstream industries. Although the automotive sector is exempt from the reciprocal tariff targets, the impending application of a 25% product-specific tariff already imposed increases the burden on efforts to penetrate the U.S. market.

The petrochemical sector, where it is difficult to avoid tariffs even by establishing manufacturing facilities within the U.S., is expected to suffer the greatest impact. As of last year, the scale of petrochemical exports to the U.S. was $4.3 billion (approximately 6.3012 trillion KRW, 9.0%), ranking second after China ($17.7 billion, 36.9%), the largest trading partner.

An official from the Korea Petrochemical Industry Association stated, "Trade will shrink, and the proportion of exports to the U.S. will inevitably decrease," adding, "Until February, exports to the U.S. showed strong performance, but demand is expected to weaken due to the upcoming economic slowdown in the U.S." The official further pointed out, "The industry is bewildered by the unprecedented imposition of high tariffs," and criticized, "If tariffs are indiscriminately imposed on essential goods rather than luxury items, it is questionable whether the U.S. itself can endure this." However, the official added, "Since the tariffs are not only imposed on Korea but also applied to major countries, the impact will not be concentrated."

The battery industry expects the confirmation of the 'performance bottom,' initially anticipated in the second quarter, to be delayed. Although some measures have been prepared to circumvent tariffs by establishing production bases in the U.S., it is difficult for upstream industries such as finished car manufacturers to avoid damage. In a recent survey conducted by the Korea Chamber of Commerce and Industry targeting 2,107 manufacturing companies nationwide, the battery sector (84.6%) reported being the most affected by Trump’s tariff policy, surpassing other major sectors such as automobiles and parts (81.3%) and semiconductors (69.6%). In terms of export scale, last year $2.7 billion (64.3%) worth of batteries were shipped to the U.S., ranking first overall ($4.2 billion).

An industry insider explained, "Whether the cars are produced domestically in the U.S. or imported as finished products, parts are procured from abroad, so prices could rise by more than $10,000 in some cases," adding, "If automobile sales decline, related industries will be broadly affected." The insider also expressed hope, saying, "Once the three major battery companies’ production bases in the U.S. are established and sequentially start operations, the impact of tariffs may be relatively less." Regarding future performance forecasts, the insider predicted, "Because the impact on upstream automotive industries is extensive, the industry’s performance is expected to be worse than initially anticipated for the second quarter."

A trade expert commented, "The reciprocal tariff level (10%) was close to the worst-case scenario the industry had anticipated," and evaluated, "If fully implemented, price increases and economic slowdown are inevitable, so negotiations and tax reductions will follow." However, the expert noted, "While some countries have already responded swiftly with retaliatory tariffs and economic support measures, Korea lacks a control tower," explaining, "A slowdown in corporate production and investment and deterioration in performance are unavoidable."

There are also opinions that industries exempt from tariffs, such as shipbuilding and defense, should be put forward as negotiation cards. Professor Kang In-su of the Department of Economics at Sookmyung Women’s University (former president of the Korean International Trade Association) emphasized, "While accepting some of the issues raised by the U.S., efforts should be made to lower tariffs by demanding industrial cooperation with the shipbuilding sector." Professor Kang added, "Domestic corporate performance this year could be quite poor," and said, "In addition to the U.S. market, efforts should continue to expand trade with China and focus on final consumer goods."

The automotive and auto parts sectors, which are the top export items to the U.S., feel relieved as they were excluded from the additional reciprocal tariffs this time. However, the 25% product-specific tariff is expected to be unavoidable starting from the 3rd (local time). Hyundai Motor Company announced that it will maintain competitiveness without raising prices in the U.S. market. At the '2025 Seoul Mobility Show' held on the 3rd at KINTEX in Ilsan, Gyeonggi Province, Hyundai Motor President Jose Munoz said, "The tariff announcement is not a surprising fact," and added, "Currently, there are no plans to raise prices in the U.S. market."

This content was produced with the assistance of AI translation services.