Saturday, May 10, 2025

U.S. Tariffs Hit South Korean Firms in Mexico, Shifting North American Strategy

​If supply chain cooperation among the United States, Canada, and Mexico increases, South Korean exports will also rise.
​If supply chain cooperation among the United States, Canada, and Mexico increases, South Korean exports will also rise.

As of March 4, the U.S. has imposed a 25% tariff on Mexico and Canada while adding a 10 percentage point tariff on China. This has raised concerns for South Korean companies that have entered the U.S. market through Mexico and Canada, sparking increased interest in supply chain cooperation among the three North American countries. On March 12, the Trump administration also began implementing an additional 25% tariff on steel and aluminum imports. Trump’s constant emphasis on bringing manufacturing back to the United States as a matter of national security is weakening cooperation among the three North American countries.

The impact is immediate for about 400 South Korean companies with production facilities in Mexico under the United States-Mexico-Canada Agreement (USMCA). In 2024, out of the 270,000 vehicles Kia produced in Monterrey, Mexico, 140,000 were sold in the United States. With the 25% tariff, analysts predict that vehicle prices will increase by thousands of dollars per unit, which could reduce Kia’s operating profit by up to $690 million. Samsung Electronics and LG Electronics, which have used Mexico as a forward base for targeting the U.S. market by manufacturing home appliances such as televisions and refrigerators, are facing similar challenges.

Despite political threats during Trump’s first term, private sector supply chain cooperation among the U.S., Canada, and Mexico remained active. The Korea Institute for International Economic Policy’s report, Policies for Strengthening Supply Chain Linkages by Major Industries in North America and Their Implications, analyzes that with the inauguration of Trump’s second administration, trilateral cooperation now faces new challenges. Ironically, Trump’s first-term unilateral trade policies increased U.S. dependence on Canada and Mexico. However, Trump seems determined not to repeat past mistakes, continuing to target Canada and Mexico in his second term.

The study reveals that strengthening North American supply chain links has positively impacted South Korea’s exports. A 1% increase in North American value-added exports due to supply chain connections leads to an approximate 11.67% increase in South Korea’s overall value-added exports and an 11.8% rise in total exports. Notably, sectors such as retail, electrical equipment, chemicals, and rubber and plastics have significantly boosted South Korea’s value-added exports within the same industries. The petroleum refining and computer, electronics, and optical products sectors also benefited from strengthened supply chain links.

The challenge now lies in the long-term strategy for South Korean companies facing difficulties in indirect market entry. The report recommends developing a holistic approach to the three North American countries. It suggests that South Korea must reconsider its view of Mexico and Canada, which were previously used as springboards for the U.S. market. Specifically, it advises shifting entry strategies towards cooperation centered on intangible assets like technology collaboration. The report also emphasizes the need for enhanced government-level communication with the three North American countries and the pursuit of trade agreements.

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