Trump's Mexico tariff plan raises concerns for Korean firms

U.S. President-elect Donald Trump attends a campaign event in Allentown, Pa., Oct. 29. Reuters-Yonhap

By Lee Min-hyung

• Published Nov 26, 2024 4:48 PM KST
• Updated Nov 27, 2024 2:10 PM KST

Major Korean companies, including Samsung Electronics and LG Electronics, are now exploring the possibility of reshaping their global supply chains in response to U.S. President-elect Donald Trump’s threat to impose a 25 percent tariff on goods imported from Mexico.

Mexico has served as a key base for many Korean companies that export products to the United States.

On Monday (local time), Trump said on his social media account that his administration will impose 25 percent tariffs on products from Mexico and Canada until they help the U.S. limit the flow of illegal immigration. In addition, the incoming Trump administration's proposed tariff hike appears to be driven by the belief that China is using Mexico as a manufacturing detour to bypass trade barriers.

Industry officials said Korean companies doing business there have no choice but to find other regions for exports to the U.S., as they will end up losing price competitiveness if the tariffs are imposed.

“Korean companies, which run manufacturing facilities in Mexico, are reviewing ways to diversify their production bases into other countries,” an official in the tech industry said on condition of anonymity. “The two electronics firms are the two most vulnerable companies, as they rely heavily on their Mexican factories for exports to the U.S.”

But the official also expressed concerns that customers will end up falling victim to such excessive tariffs on end products.

“Tariffs on device components and finished products lead to a hike in their prices, so U.S. retail players and customers will have to purchase them at a higher price in the aftermath of Trump’s trade pressure,” the official said.

LG Electronics operates diverse production lines in Mexico to manufacture television, refrigerator and automobile components. The company said an internal review is in progress to minimize damage.

“We are leaving open all scenarios to deal with the rapidly-changing trade policies in the U.S., and will come up with countermeasures,” an official at LG Electronics said.

Samsung Electronics runs a television manufacturing facility in Tijuana, Mexico for export to the U.S.

Along with the electronics firms, LS Cable & System is also on track to expand investments in production facilities in Mexico. In August, the company started construction of two factories there to manufacture bus ducts and parts for electric vehicle (EV) batteries. Bus ducts are a type of electrical distribution system used to efficiently carry electricity from one point to another.

At that time, the company identified Mexico as one of the most strategic production bases for its exports to the U.S., citing low labor costs and the U.S.-Mexico-Canada Agreement, which is a free trade pact signed by the three countries.

But Trump is widely expected to initiate a procedure to renegotiate the agreement upon taking office in January 2025.

This has presented the Korean cable and industrial product manufacturer with a growing dilemma on how to readjust its export strategies in North America.

A spokesperson for LS Cable & System stated that the company has increased its vigilance regarding changes in the trade landscape.

“We are trying our best to prepare the most optimal countermeasure against the looming trade risk there,” the official said.

Korean carmakers and steelmakers, such as Kia and POSCO, are also feared to fall victim, as they run production lines in Mexico.