Lee’s push for tax cuts on local chips, batteries feared to draw US backlash

President Lee Jae-myung speaks druing a meeting of an emergency economic task force at the presidential house in Seoul, Monday. Joint Press Corps

President Lee Jae-myung’s push to grant more tax incentives for local chip and battery production is feared to draw backlash from the United States, as the drive could be seen as a “foreign trade barrier” that Washington will take issue with.

Under the pledge, the Lee administration will provide a drastic tax cut for companies in key strategic industries if they source production here and sell their end products to local customers.

This comes as part of Korea’s efforts to protect local firms amid growing global protectionism after U.S. President Donald Trump took office.

However, the pledge is feared to face possible complaints from the U.S., which has repeatedly cried foul over such government measures or subsidies aimed at protecting local companies.

The U.S. has yet to lodge an official protest over the plan, but the issue could be raised by the United States Trade Representative (USTR) in ongoing trade talks with its Korean counterpart.

Container boxes are piled up for export at a port in Pyeongtaek, Gyeonggi Province, June 1. Yonhap

Both countries held two rounds of bilateral trade talks for the so-called July package deal on tariffs and other pending trade affairs. Korea’s top priority is to abolish massive tariffs the U.S. imposed, particularly on imports of cars and steel products, as the two industries are considered vital pillars for the export-reliant Korean economy.

The U.S., for its part, is urging Korea to ease a series of nontariff barriers and increase imports of U.S. products, particularly in energy. This is a reflection of Trump’s outward discontent with countries reporting a trade surplus with the world’s largest economy.

Lee’s pledge to help rev up sagging tech industries here, however, may be in vain if the U.S. takes issue with the plan to gain an edge in the tariff negotiations.

In the 2025 U.S. National Trade Estimate (NTE) Report, the USTR classifies any government measures that block international trade or U.S. foreign direct investment as foreign trade barriers.

“The NTE Report classifies foreign trade barriers in 14 categories,” the report said. “These categories cover measures and policies that restrict, prevent or impede the international exchange of goods and services, U.S. foreign direct investment or U.S. electronic commerce.”

The NTE also argued that “import substitution subsidies” are one of the categories that block fair trade activities between the U.S. and other countries. It cited “subsidies contingent on the purchase or use of domestic rather than imported goods” as an example of the import substitution subsidies.

Experts said Korea needs to keep addressing the importance of helping local firms in its ongoing trade talks with the U.S.

“Korea’s key industries are exposed to toughening competition from China, so the government should keep persuading the U.S. over the current obstacles local manufacturing sectors face,” said Choi June-sun, professor emeritus at Sungkyunkwan University Law School.

“As the trade talks are still underway, we need to wait and see before jumping to any hasty conclusions.”