Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Conglomerates concerned over additional earnings fall amid US tariffs
White House press secretary Karoline Leavitt speaks as she holds up a letter from U.S. President Donald Trump to President Lee Jae Myung during a press briefing at the White House in Washington, Monday (local time). AP-Yonhap
By Lee Min-hyung
Samsung, LG report earnings shock in 2nd quarter
Korea’s major tech-focused conglomerates are bracing for steep earnings declines in the latter half of this year, as trade uncertainties show no clear signs of abating amid stalled tariff talks between Seoul and Washington, officials from companies and business lobbies here said Tuesday.
On Monday (local time), U.S. President Donald Trump warned more than a dozen countries, including Korea, that they will face steep tariffs on their exports starting Aug. 1 unless they reach new trade agreements by then.
The export-reliant structure of the Korean economy makes it more vulnerable to the massive tariff imposition from the United States. Key export players, such as Samsung and LG, are already jolted by sequential earnings shocks in the second quarter following Trump’s tariff measures.
In recent months, Korea and the U.S. have engaged in a series of high-profile trade negotiations. Korea initially sought to secure the so-called “July 8 package deal” to abolish item-specific tariffs, particularly on automobiles and steel — two of the nation’s core export growth engines.
However, with Seoul failing to reach a trade deal with Washington by the targeted timeline, the nation’s business circle is on edge over further earnings losses.
Officials from conglomerates said they cannot avoid any short-term earnings shocks due to the mounting tariff risk.
A truck unloads a shipping container at a port in Pyeongtaek, Gyeonggi Province, Tuesday. Reuters-Yonhap
“Ever since Trump took office in January, many export-driven companies have sought ways to diversify their export channels into other countries, but it still takes time to reduce their huge trade reliance on the U.S.,” an official from one of the nation’s major conglomerates said.
The worst has yet to come, and many manufacturing players with strong trade reliance on the U.S. will suffer bigger earnings shocks in the latter half of the year unless Korea succeeds in clinching a meaningful trade consensus with the U.S., according to the official.
In a preliminary earnings result released Monday, LG Electronics reported an operating profit of 639.1 billion won ($467.5 million) between April and June, down 46.6 percent from the previous year, in the aftermath of unfavorable changes in the trade landscape in the U.S.
Samsung Electronics' flag waves in front of its office building in Seoul, Tuesday, when the company reported an operating profit fall of 55.94 percent in the second quarter compared to a year earlier. Yonhap
Samsung Electronics, Korea’s largest company by market capitalization, stunned the market on Tuesday by reporting a 55.94 percent year-on-year drop in operating profit for the same period — falling from 10.44 trillion won to 4.59 trillion won.
Market consensus is that Hyundai Motor and Kia may also report double-digit drops in their second-quarter operating profits. Both carmakers have manufacturing facilities in the U.S., but still rely on exporting vehicles to the country to meet growing demand there.
Chang Sang-sik, who leads the International Trade and Commerce Research Center at the Korea International Trade Association, urged companies to proactively diversify their export channels into other regions to minimize the tariff burden.
“The Korean government and companies have to reduce their trade reliance on the U.S. and China and focus more on varying their export channels into the European Union, the Association of Southeast Asian Nations and India,” he said Tuesday during a forum.
An official from a major business lobby said the role of the government is becoming more and more important at this critical juncture, as tariff risks reach their highest level.
“Conglomerates are aware of the need to diversify their trade channel, but this cannot be done in a short period of time,” the official said. “The best-case scenario is that the government reaches a timely trade agreement with the U.S.”