Korea is scared! South Korean media: Investment in the US has become a risk... "Rather than building a factory, it's better to pay tariffs and export"

¬ The uncertainty of the US market is increasing

After 300 Korean workers who went to the United States to build advanced manufacturing plants were collectively arrested and detained due to "visa issues", companies that had announced large-scale investments in the US once again deeply felt the "risk of the US market".

This year, in order to avoid Trump's "tariff bomb", South Korean companies have continuously announced investment plans in the US. Especially before the South Korea-US summit, the South Korean government launched a large-scale "investment package", and companies that had already announced investment plans also proposed large-scale additional investment plans, with a scale as high as $150 billion (about 209 trillion won). A person related to a major company said, "Due to various situations, it seems like we are being pushed forward, and the investment amount has exceeded current needs."

In this situation, policies such as "reducing subsidies" and "strengthening immigration control" promoted by the Trump administration in the US are completely opposite to those of the previous Biden administration, making South Korean companies increasingly worried. There are even discussions among South Korean companies saying, "If the market is so unpredictable, it's better to re-examine the investment and pay higher tariffs."

Investment in US factories with low cost-effectiveness

South Korean companies previously took a negative attitude towards building production bases in the US. Because compared to South Korea, labor costs in the US are extremely high, and it is difficult to find skilled workers. A person from the semiconductor industry said, "Factories are often built in rural areas with low income levels in the US, where most locals have never seen a 'semiconductor clean room' and few have ever built large-scale factories. Even so, labor costs are high, and they must train these people to be able to build advanced facilities within the project period, and collaborate with local universities to continuously supply manpower. In other words, a new ecosystem must be re-established."

A 2021 report by the US Semiconductor Industry Association showed that the total cost of operating an advanced system semiconductor factory for 10 years in the US is 28% higher than in South Korea. If it costs 100 in the US, it would cost 78 in South Korea, Taiwan, Japan, and 63 in China. This means that the US is inefficient in terms of holding and operating semiconductor factories. Currently, the burden caused by the difference in labor costs is greater than the equivalent tariff applied to South Korea (15%) and the car tariff (negotiated at 15%, but not yet implemented, originally 25%).

All costs are invested in dollars, and with the simultaneous rise in exchange rates and prices, the increase in labor costs and raw material costs has also caused a huge burden. Local media (Reuters in 2023) reported that the construction cost of Samsung Electronics' semiconductor factory being built in Taylor, Texas, USA, has increased by 47% compared to the initial estimate (17 billion USD), reaching over 25 billion USD (34.75 trillion won). Converted into won, it will cost more than 11 trillion won (approximately 56.5 billion yuan). Reuters quoted local sources at the time, saying, "In the part where engineering costs have increased, the cost increase accounts for about 80%."

The cost explosion continues. The Trump administration insists on a high-tariff policy, setting the import steel tariff at 50%. This has led to inflation, causing the construction costs of US factories to continue to rise.

Subsidies and immigration policies have made a complete turnaround

The biggest problem is "uncertainty." This is an element that is hard to imagine in the US, which was once a model of a free market economy. The previous Biden administration introduced a large-scale subsidy plan to offset the notoriously high cost structure of the US market and attract manufacturing investment. However, this promise has now been completely overturned. The Trump administration not only reduced and abolished subsidies this year, but also proposed an incredible plan to "hold shares in investment companies."

The issue of "immigration control" is also the same. In 2021, the Biden administration announced the suspension of "large-scale workplace raids" aimed at deporting illegal residents. This decision was closely related to the Biden administration's efforts to attract investment. Georgia has benefited greatly from the arrival of many Hyundai Motor factories and South Korean secondary battery companies. On the contrary, during Trump's second term, while attracting more foreign enterprises to invest, he tightened visa issuance and completely reversed the immigration policy. During this period, there was even an incident of "Hyundai Motor-LG factory mass arrest" that was widely reported by global media.

A person related to a South Korean company said, "The worst thing for companies is not loss, but uncertainty. The uncertainty of the US market, which cannot predict future conditions, inevitably hinders long-term investment plans of companies."

Sources: Chosun Ilbo

Original: www.toutiao.com/article/1842773733708873/

Statement: This article represents the views of the author."