[US Tariff Season 2] US Becomes Largest Export Market, but Dual Burden of Market Diversification Persists

One Year of High Tariffs: Local Investments Add to Burden
Production Shift and Job Cuts Dilemma Amid Deepening U.S. Dependence
Urgent Need for Export Diversification, but Middle East Risks Disrupt Plans

One year has passed since the United States began imposing high tariffs in April of last year. Companies such as Samsung Electronics, SK hynix, and Hyundai Motor Group have poured trillions of won into the U.S. in an effort to overcome tariff barriers. However, even after a year, uncertainties such as the threat of additional tariffs persist. Domestic companies are now facing the dual challenge of not only having to navigate their largest export market—the United States—but also bearing the burden of market diversification.

Hyundai Motor Expands U.S. Local Production... Domestic Employment Cuts Unavoidable

According to the business community on April 3, Hyundai Motor Group was one of the companies that responded most proactively after the Trump Administration imposed tariffs last year.

The United States is a key market, accounting for about 25% of Hyundai Motor Group’s total sales. To mitigate the impact of high tariffs on imported cars, the company committed to investing in the U.S. market, with total investments reaching about 38 trillion won (26 billion dollars). In fact, Hyundai Motor and Kia suffered a combined financial blow of 7.2 trillion won last year due to the imposed tariffs.

To address this, Hyundai Motor Group invested trillions of won to expand local plants such as Hyundai Motor Group Metaplant America (HMGMA) in Georgia. These plants serve as “forward bases” to offset tariff risks. Hyundai Motor Group plans to increase U.S. local production by an additional 200,000 units this year to alleviate the impact of tariffs. Last year, U.S. plant production was boosted by 9.3% year-on-year to 782,320 units, and this year, the company aims to produce nearly 1 million vehicles locally.

The problem lies in the domestic market. Unless additional export volume to regions other than the U.S. can be secured, a reduction in domestic production is only a matter of time. Labor unions are concerned that, if production is moved overseas, the minimum domestic production volume of 1.74 million units specified in the collective agreement could be breached. They also argue that if the proportion of overseas production of popular models such as hybrids increases, it could lead to reduced domestic employment and job losses for auto parts workers.

Hyundai Motor Group’s solution is to reduce its dependence on the U.S. market through export diversification. CEO Jose Munoz recently announced in a shareholder letter that the company plans to launch a total of 46 new models in China and India over the next five years. The company also set a goal of selling 1,276,500 vehicles in China and India by 2030.

However, the situation is not easy. Both China and India are seeing the influence of local brands expand, making them tough markets to penetrate. In China, Hyundai Motor’s sales volume last year stood at about 180,000 units, with a market share below 1%. In India, sales fell 5.5% year-on-year last year, and the company’s market share dropped from second to fourth place.

Steel and Aluminum Tariff System Overhaul... 25% Tariff to Be Levied Across the Board

The steel industry, like the automotive sector, has struggled with lingering uncertainty despite efforts to ease tariffs over the past year. The domestic steel industry is closely monitoring the Trump Administration’s plans to overhaul the steel and aluminum tariff system.

According to the Wall Street Journal (WSJ) on April 1 (local time), the Trump Administration will announce a presidential proclamation within the week that imposes a 25% tariff on the total price of finished products (derivative products) containing imported steel and aluminum. Previously, tariffs of up to 50% were imposed based on the content of steel or aluminum in finished products, but the new system will instead apply a flat 25% tariff on the entire value of the product.

Analysts say this regulatory change will have the practical effect of increasing tariffs. On the surface, it may look like the rate is dropping from 50% to 25%. However, since the tariff will now be imposed on the total value of imported products—not just the value of the steel or aluminum contained—there is a possibility that the actual tariff burden will increase compared to before.

According to the Korea Institute for Industrial Economics and Trade, domestic steel production this year is expected to total 63.5 million tons, marking a third consecutive year of decline. In addition to sluggish domestic demand, export conditions are deteriorating. Steel, in particular, is a sector with a high proportion of fixed assets, making it one of the least burdensome areas for the U.S. to invoke domestic manufacturing protection. Last year, the U.S. remained the largest export market for Korean steel, followed by Japan, China, Mexico, and Vietnam.

Geopolitical risks stemming from the Middle East are also adding to the burden on the steel industry. While companies have been pursuing export diversification to regions such as Europe and the Middle East to lessen dependence on the U.S. market, they now believe the crisis in the Middle East makes a strategic shift inevitable.

Semiconductors and Home Appliances... Growing Uncertainty

Semiconductor companies that have been actively expanding into the U.S. market have also faced strong investment pressure from the Trump Administration over the past year. During the Biden Administration, companies responded to the CHIPS and Science Act by increasing local investment, but with the Trump Administration, the pressure to further expand investment has intensified.

However, industry insiders say that despite increased uncertainty, there has yet to be any tangible change in terms of actual investment or production. While the introduction of tariffs on semiconductor items has been signaled, no concrete implementation measures have been finalized, so the impact on the domestic industry has so far remained limited.

The situation is even more complicated for the home appliance sector, which is subject to tariff risks. Companies must now consider both reciprocal tariffs by country and product-specific tariffs, increasing the burden of response. Firms have tried to minimize the impact by adjusting production volumes and reallocating manpower between production bases whenever tariffs are announced.

An industry official explained, "As the types of tariffs increase and tariffs are applied differently depending on the country, product, material, and raw materials, there are now more variables and conditions to consider. Simply increasing production or investment in the U.S. does not necessarily give us an advantage."

Large companies have managed to respond to some extent by adjusting production bases and utilizing alternative supply chains, but midsize and smaller firms have had relatively limited capacity to react. From February of last year to January of this year, the Korea Trade-Investment Promotion Agency (KOTRA) received over 10,000 consultations from export companies regarding tariffs.

According to KOTRA, companies that do not yet have local manufacturing subsidiaries or that planned to build new facilities and increase investment have been unable to make decisions easily, as high tariffs are imposed on related equipment such as steel and aluminum derivatives. Unlike large companies, it has also been difficult for midsize and small enterprises to quickly change their export-import supply chains.

Tae-Hwang Kim, professor of international trade at Myongji University, commented, "It will be difficult to return to the pre-tariff era. External risks, in one form or another, are likely to persist as a constant." He added, "When companies assess profitability, they now need to consider not just price, but also risk management and transaction costs. They should also look ahead and prepare to restructure and strengthen their competitiveness to adapt to the 'post-Trump era.'"

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