Korean automakers and battery-makers now face the daunting task of coping with a second Donald Trump administration, as they try to prepare various measures to weather the storm of uncertainties expected from the next president of the United States.
Throughout his election campaign, Trump has openly criticized the Joe Biden administration’s Inflation Reduction Act and its Advanced Manufacturing Production Credit that have given financial benefits to Korean companies in the electric vehicles sector, even saying he “will end the EV mandate on Day 1.”
Although there is no such a thing as an “EV mandate,” the former president’s remarks aimed at curbing the growth of the EV sector, including all-electric cars and batteries, are enough to threaten Hyundai Motor and Kia, as well as LG Energy Solution, Samsung SDI and SK On.
The Korean companies in the auto and battery sectors have invested billions of dollars in building manufacturing plants in the US. In particular, LG Energy Solution, Samsung SDI and SK On have benefited from the AMPC to the point that they would have logged operating losses in the third quarter this year if not for the tax credits.
Kim Pil-su, an automotive engineering professor at Daelim University, called Trump a “rugby ball” referring to the former US president’s unpredictability.
“Battery companies will especially have a tough time,” said Kim.
“Hyundai Motor will produce hybrid vehicles at the Georgia plant even if Trump cuts down the IRA subsidies so it can flexibly countermeasure that. Plus, Hyundai Motor’s hybrid vehicles are selling well in the US. But batteries are intermediate products so if (original equipment manufacturers) do not place an order, that’s it. Not only Korean companies but also the Korean government must active their plan B in regard to the US trade protectionism.”
Yulchon, a Korean law firm, pointed out that Korean carmakers will be hit by Trump’s higher tariff policy on auto imports as well as the former president’s anti-EV stance, noting that Korea’s auto exports to the US accounted for almost half of Korea’s total auto exports worldwide last year.
“Under Trump’s trade protectionism, there is a good chance that Korea will be included in the list of countries that will face a 10 percent universal baseline tariff and the Korean auto industry will have to bear that burden,” said Yulchon in its forecast released shortly after Trump’s victory became obvious on Wednesday.
“The Korean government and companies should cooperate to avoid the high tariffs being imposed on the auto exports and expand support measures to cope with (US) regulations on the origin of manufacturing parts and intermediate products."
Despite the projected worries, not everyone seemed so pessimistic about a second Trump administration.
“Trump declared that he would scrap the IRA altogether in his campaign pledge, but that was a promise between (Korea and the US), and Korean companies have invested nearly 60 trillion won ($43.1 billion) to create jobs there,” said Lee Ho-geun, an automotive engineering professor at Daeduk University.
“So it will be difficult for the IRA to be entirely removed. Rather, (Trump) will move in the direction of reducing the subsidies. So the companies doing business in the US such as Hyundai Motor and the Korean battery firms will see some damage, but I do not think it will be severe.”
Tom Ramage, an economic policy analyst at the Korea Economic Institute of America, dismissed concerns over Trump’s possible attempt to get rid of the tax incentives.
“Trump’s ‘America First’ policies will extend deeply into the manufacturing sector,” said Ramage.
“Korean EV and battery manufacturing companies who have already set up in the United States will benefit from being shielded from plans to introduce all-around tariffs on imports. By continuing to invest in America, regardless of what happens to EV-promoting initiatives like the IRA, Korean companies can benefit from the Trump administration’s domestic industrial policies.”
