logo
Trump's Tariffs Aren't the Only US Policy Hurting South Korea's Economy

Trump's Tariffs Aren't the Only US Policy Hurting South Korea's Economy

The Diplomat6 days ago
Any trade deal will also need to address regulatory changes that are degrading South Korean investments in the U.S..
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.
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Nissan Logs 115.7-B.-Yen Net Loss in April-June

time3 hours ago

Nissan Logs 115.7-B.-Yen Net Loss in April-June

News from Japan Economy Jul 30, 2025 20:41 (JST) Yokohama, July 30 (Jiji Press)--Struggling Japanese automaker Nissan Motor Co. on Wednesday reported a consolidated net loss of 115.7 billion yen in April-June, its first red ink for the period in five years. The loss, which compares with the year-before profit of 28.6 billion yen, reflected the impact of high tariffs imposed by the administration of U.S. President Donald Trump. The company last posted a net loss for the quarter in 2020, during the COVID-19 pandemic. Nissan logged an operating loss of 79.1 billion yen for April-June this year, against a profit of 1 billion yen a year before. The company attributed 68.7 billion yen of the loss to the U.S. tariff impact. For the first half through September, the company forecasts an operating loss of 180 billion yen. [Copyright The Jiji Press, Ltd.] Jiji Press

Nissan logs 115.76 bil. yen net loss in April-June on US tariffs
Nissan logs 115.76 bil. yen net loss in April-June on US tariffs

The Mainichi

time4 hours ago

  • The Mainichi

Nissan logs 115.76 bil. yen net loss in April-June on US tariffs

TOKYO (Kyodo) -- Nissan Motor Co. said Wednesday it posted a net loss of 115.76 billion yen ($780 million) for the April-June quarter due to U.S. auto tariffs and expects to remain unprofitable in the first half, as U.S. trade policy adds pressure on the beleaguered carmaker to speed up restructuring. The loss in the first fiscal quarter is a sharp reversal from a profit of 28.56 billion yen in the same quarter last year. Nissan expects an operating loss of 180 billion yen for the six months through September. It did not issue a forecast for the full business year through March 2026, citing uncertainties over tariffs. President Donald Trump raised auto tariffs by 25 percentage points to 27.5 percent in April, but the United States and Japan agreed last week to reduce the rate to 15 percent for Japanese autos. "There is a change, but it's still not clear to us (what) some of the conditions and when the change for the tariff from Japan to the U.S. will come into place," Nissan CEO Ivan Espinosa said at a press conference. "We welcome the improvement, but 15 percent is still a challenging number, which is why (we) need to costs and reducing our exposure to tariffs as much as we can," he added. The carmaker logged an operating loss of 79.12 billion yen in the three-month period, compared with 995 million in profit a year earlier, as sales fell 9.7 percent to 2.71 trillion yen. Tariffs accounted for the bulk of the operating loss at 68.7 billion yen, with the automaker also factoring in the weakening of the U.S. and Canadian dollars. Meanwhile, its global vehicle sales for the first fiscal quarter fell 10.1 percent from a year earlier to 707,000 units, with Nissan citing growing competition in China and waning confidence in the brand among Japanese customers. The automaker is in the midst of overhaul efforts to restore profitability by cutting back its global workforce and production capacity. It has announced plans to reduce global production capacity from 3.5 million units, excluding China, to 2.5 million units by cutting the number of production sites in Japan and abroad from 17 to 10 by fiscal 2027. Nissan said earlier in the day that it would end production at its Cuernavaca plant in Mexico by the end of March 2026. Earlier this month, it announced that it will cease vehicle production at its flagship Oppama plant in Kanagawa Prefecture, near Tokyo, by the end of fiscal 2027, with operations to be transferred to its factory in southwestern Japan. "We are trying to keep a strategic geographical coverage while we resize the system for something that is more manageable for the level of revenue we are commanding," Espinosa said. He declined to comment on reports that the automaker planned to work with Honda Motor Co. to share common basic software, but confirmed they were in discussions on several joint projects. The two companies announced in December plans to begin merger talks under a holding company, aiming to share the financial burden of developing electric vehicles and software to better compete with global rivals. But the talks broke down less than two months later.

As China advances and the U.S. retreats, Japan-India ties grow stronger
As China advances and the U.S. retreats, Japan-India ties grow stronger

Japan Times

time5 hours ago

  • Japan Times

As China advances and the U.S. retreats, Japan-India ties grow stronger

At a summit in Washington earlier this month, foreign ministers from 'the Quad' nations of Australia, India, Japan and the U.S. agreed to work together to ensure a stable supply of critical minerals and released the following joint statement: 'We are committed to a region where all countries are free from coercion and strongly oppose any unilateral actions that seek to change the status quo by force or coercion.' The Quad diplomats were, of course, referring to China's growing economic and military ambitions in the Indo-Pacific region and its gray-zone threats in the South China and East China seas. But 'coercion' is also an accurate description of U.S. President Donald Trump's aggressive trade policies in the region and insistence, as with NATO in Europe, that the nations of the Indo-Pacific increase their military spending and take more responsibility for their own defense. In this environment, bilateral India-Japan relations are more important than ever. Located on two ends of the Indo-Pacific region, India and Japan are pivotal to shaping a stable and viable counterweight to Chinese ambitions and the volatility of Trump's second term. Both countries possess a strategic heft that makes them invaluable to any Indo-Pacific strategy and have a record of success in regional coalition building and strategic autonomy to advance their own shared interests, whether in the Indo-Pacific or Southeast Asia. India-Japan relations have a nuanced history, including collaboration between Japanese forces and the Indian National Army, an Indian nationalist military force allied with Tokyo, in World War II. Former Prime Minister Shinzo Abe's first articulation of the 'Indo-Pacific' took place in New Delhi in a speech to the Indian Parliament on the 'Confluence of the Two Seas' in 2007, when he spoke of how 'the Pacific and Indian Oceans are now bringing about a dynamic coupling as seas of freedom and prosperity.' In addition to the Quad, both Japan and India are members of a clutch of ASEAN-led regional bodies, the Group of 20 and the Group of Four, which is seeking a seat in a reformed U.N. Security Council. In addition to forming the Quad in 2007, India and Japan's contemporary history is built on a robust relationship anchored in the 2011 India-Japan Comprehensive Economic Partnership Agreement and the India-Japan Special Strategic and Global Partnership of 2014. These partnerships sprung from three significant events a decade earlier. First, after years of investing heavily in China, the country's 2005 anti-Japanese riots led to a shift of focus toward India. Second, given Japan's special postwar relationship with the U.S., the Indo-U.S. Civil Nuclear Agreement, announced in July 2005, was necessary for the growth of ties with India. And third, the arrival in Japan of more outward-looking prime ministers like Junichiro Koizumi (2001-2006) and Shinzo Abe (2012-2020) led to deeper diplomatic relations. Moreover, Japan has played a significant role in India's development with nearly $60 billion worth of Official Development Assistance loans, grants and technical cooperation since 2000. This includes around $2 billion for Northeast India through which Japan seeks to forge links to Southeast Asia, where it not only provides oda, but its foreign direct investment is double that of China. Japanese money has helped build the Delhi and Chennai Metros, the Western Dedicated Freight Corridor, the Delhi-Mumbai Industrial Corridor and other roads, bridges and bypasses. Another prestige project Japan is undertaking is the high-speed rail corridor between Ahmedabad and Mumbai. Indeed, FDI from Japan has increased steadily and it is now the fourth-largest investor in the country. Military cooperation is also increasing. In 2004, the Indian, U.S. and Japanese navies came together to provide humanitarian assistance after the devastation caused by the Indian Ocean tsunami. In 2007, at the suggestion of Abe, the Quad was formed. That same year, Japan began to participate in the Indo-U.S. Malabar naval exercises. Japan's Self-Defense Forces have now been participating in it regularly since 2014 after it developed a sharper Indo-Pacific focus. Greater defense cooperation makes sense. India's entire border with China is disputed and remains unsettled — largely due to Chinese mendacity. Today, a rising China flexes its muscles and prioritizes national security; it rubs up against Japan in the Senkaku Islands and its neighbors in the East and South China seas, as well as the Himalayas. Meanwhile, the first Trump administration sounded a warning bell for Japan, signaling a more transactional relationship with the U.S. As a result, in December 2022 Japan announced that it would double its defense expenditure to 2% of gross domestic product and also acquire military capabilities it had previously avoided, such as long-range Tomahawk cruise missiles. It also announced plans to sharply enhance its cybercapabilities, satellites and unmanned aerial- and maritime-systems to support counterstrikes. Structural changes were made to the higher command of the Japanese military and it reached out to the U.K. and Australia for defense-enhanced ties. January 2023 also saw the first time Indian fighter aircraft landed in Japan for a joint military exercise, Veer Guardian. India remains leery of military alliances, but in May Tokyo and New Delhi agreed to organize a new defense cooperation consultation body, and there is considerable scope for bilateral ties in that area. Though both collaborate with the U.S. and see it as a vital balancer of China in terms of security, they also need to hedge against Trump's mercurial ways. In the past, India and Japan have made attempts to work together in areas like long-range amphibious aircraft. New Delhi had at one time also sought information on possibly making Japan's Soryu-class submarines in India but, for a variety of reasons, no deal materialized. Currently, there is an important agreement between Japan and India to transfer and co-develop advanced naval stealth technologies such as the Unified Complex Radio Antenna mast for warships and submarines. The two countries also have an agreement to jointly develop an advanced underwater surveillance system and other maritime technology to enhance their deterrence capacity in the Pacific and Indian oceans. The potential for expanding joint production of defense equipment that would leverage Japan's advanced technology with India's manufacturing capacity has barely been touched. Another focus, which overlaps the Quad relationship, is building economic resilience through supply-chain diversification in areas like semiconductors and rare earths. There is considerable scope to deepen their Comprehensive Economic Partnership Agreement by boosting trade and investment that will counter U.S. tariff threats and Chinese economic coercion. The two also need to put more energy into their 2017 idea of creating an Asia-Africa growth corridor. Crucial to stronger India-Japan ties are the high-level 'two-plus-two' meetings between the nations' defense and foreign ministers, the last of which took place last August in New Delhi. At that meeting the two sides agreed to enhance cooperation 'to reflect contemporary priorities and be responsive to contemporary security challenges facing them.' Those same challenges — emanating from both Beijing and Washington — will no doubt be high on the agenda next month during Indian Prime Minister Narendra Modi's scheduled visit to Japan. Manoj Joshi, a journalist and distinguished fellow at the Observer Research Foundation in New Delhi, is former political editor of The Times of India and the author, most recently, of 'Understanding the India-China Border: The Enduring Threat of War in High Himalaya' (2022).

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store