Concern Over New US Policy
With Donald Trump elected as the 45th President of the United States, South Korean companies’ fear is on the rise. Higher trade barriers are likely to follow and the KORUS FTA is predicted to be renegotiated.
South Korean steel companies are already facing trade protectionism. The U.S. Department of Commerce imposed anti-dumping and countervailing duties on their hot-rolled steel sheets in August this year and their exports to the United States have declined to a significant extent since then. Specifically, POSCO and Hyundai Steel are currently subject to a tariff of 60.93% and 13.38%, respectively. Similar things are likely to happen with regard to textile products South Korean companies produce in South Korea, China, Vietnam and so on and export to the U.S.
The President-elect is opposed to not only the KORUS FTA but also the NAFTA and the TPP. Qualcomm, Intel and Microsoft have already formed teams with the U.S. government to increase semiconductor production in the United States. In this context, the President-elect is likely to set up tariff barriers against electronic products manufactured in South Korea and China.
At present, South Korean automakers are producing 48.1% of their products sold in the U.S. out of the country, which means they can take a hit from the result of the election. Hyundai Motor Company and Kia Motors are currently concentrating on Mexico as their main production base for export to the U.S. and the President-elect promised during his campaign period to impose a tariff of 35% on products imported from Mexico. Then, the carmakers’ profitability and share in the U.S. market could nosedive.
Some South Korean companies are expected to be able to benefit from the election result though. The President-elect is planning to invest at least US$1 trillion in infrastructure in his country and focus more on the development of petroleum and shale gas. South Korean oil companies and construction firms’ stock prices are showing positive signs under the circumstances. South Korean defense contractors are also classified as beneficiaries because the President-elect is likely to spend more on national defense than the incumbent President. Pharmaceutical and biotech companies can benefit from the election result as well if he sticks to his promise to let drug prices be determined based on market competition.
Even so, the majority of South Korean companies are expressing serious concerns about the lack of future vision in his election pledges. According to experts, he came up with no blueprint at all during the campaign period when it comes to the green energy industry and the future industries including electric vehicles, self-driving cars and artificial intelligence. If new demands in the sectors fail to arise in the U.S., South Korean companies in those industries will lose their growth momentum.
An increasing number of organizations, such as the Peterson Institute for International Economics, Wall Street Journal and Moody’s, are predicting that his economic policy will lead to another global economic recession, in which trade retaliations follow one after another and millions of jobs are gone in the U.S. alone.