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Samsung, LG with Few Factories in US Concerned about High Tariffs
Trade Barriers
Samsung, LG with Few Factories in US Concerned about High Tariffs
  • By Michael Herh
  • November 14, 2016, 01:45
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Donald Trump may requests American companies such as Apple, which produces iPhones via Foxconn in Taiwan, to produce all products in the United States.
Donald Trump may requests American companies such as Apple, which produces iPhones via Foxconn in Taiwan, to produce all products in the United States.

 

Donald Trump, who was elected as the 45th president of the United States, wants to increase the number of good jobs in the US, and requests American companies such as Apple to produce all products in the United States.

Apple is currently manufacturing the iPhone at seven overseas factories -- six in China and one in Brazil -- by subcontracting the assembly of the iPhone to Foxconn and Pegatron in Taiwan. The MIT Technology Review says that if Apple assembles the iPhone in the US, the price of the iPhone will rise by about US$30 to US$40 per unit, and if even parts are manufactured in the US, it will soar by more than US$100.

However, Korean companies are not in a position to wait and see this situation. Major Korean IT companies such as Samsung Electronics, LG Electronics, and SK Hynix are concentrating their production bases on China and Vietnam to cut labor costs. Smartphone parts makers are increasing their China and Vietnam factories in consideration of its close proximity to China, the final assembly site. Samsung Electronics and LG Electronics set up TV and home appliance factories in Mexico and are exporting a considerable number of products to the US.

Last year, Samsung Electronics’ and LG Electronics’ sales in North America accounted for 31.4 percent and 29 percent of their total sales, respectively. This suggests that North America, in particular, the US is a key market for them.

US President-elect Trump has pledged to raise tariff barriers to lower the price competitiveness of foreign products coming into the United States and to increase production in the United States. He promised to lay 45 percent tariffs on Chinese products and 35 percent on Mexican goods. The abolishment or renegotiation of the North American Free Trade Agreement (NAFTA) and the Korea-US Free Trade Agreement (FTA) was a promise of Trump which excited American blue-collar workers. The industrial sector is concerned that the Pacific Rim Economic Partnership Agreement (TPP) which includes Japan and Southeast Asian countries could be scrapped.

The Korean IT industry is forecasting that the US will strengthen not only its tariff barriers but also various non-tariff barriers. An example is that the US International Trade Commission (ITC) started investigating whether SK Hynix infringed US patents. A representative of the Korean industry said, “We are also closely monitoring a possibility that the US will take measures such as import sanctions against companies that do not have factories in the United States as part of its policies to protect the US industry.”

However, Trump's decision to put a brake to China's capital’s takeover of American firms can become good news to Korean semiconductor companies. In order to produce memory semiconductors on its own, China is threatening Samsung Electronics and SK Hynix by buying US semiconductor companies technologically capable of producing memory chips. Recently, it was reported that Chinese companies could buy equities in Micron, an American company. Trump has advocated hard-line regulations on Chinese capital since launching his presidential election campaign. Therefore industry experts are analyzing that China's acquisition of semiconductor technology through M&As will be delayed for a considerable period of time.