I would not be fitting without sharing my thoughts on the recent US presidential election and its potential impact on US Korea global business. To many in Korea the election results are troubling… another layer of stress and concern amid a downturn in Korean exports.
Trade agreements, US military support for South Korea and dealing with North Korea top the list. On the trade agreement front, I was a supporter of KORUS FTA both prior to its ratification and contributing a number of high profile articles on the benefits of the treaty.
From 2012:
https://bridgingculturekorea.blogspot.com/2012/05/korea-facing-business-2012.html
From 2013:
http://www.uskoreaconnect.org/blog/2013/04/trade-in-ideas-a-hidden-benefit-of-korus-fta/
From 2014:
http://www.uskoreaconnect.org/news-events/newsletter/newsletter-3-2.html
More so, I’ve commonly referred to KORUS FTA is news articles, interviews and speaking engagements.
My clients Hyundai Motor America, Kia Motors America and well as Mobis Parts America benefit from the treaty… although I’m told 60% of the two OEMs finished product sold in America are made in US plants. (Some engines and a number of Tier 1, 2 and 3 components are still imported, but much less than when the plants were established).
Frankly, I am more concerned with trade agreements with Mexico. Korean Groups, Hyundai, Samsung and LG operate plants across Mexico for local demand and export to America.
As an example, a new Kia Motors Mexico plant opened earlier in 2016 with plans to supply up to 80% of their capacity for export. A heavy trade tariff on Mexican goods exported to the US would be troubling not only to Kia, but a growing wave of Korean Tier providers. On a side note, opening a plant in Mexico for an OEM is not only about labor costs and savings, but eliminates a heavy tariff on vehicles the brand also wishes to imports into Mexico.
In addition and less know as another example is Hyundai Motor Group affiliate Hyundai Translead, who I have also supported. First developed under the maquiladora program, trailers made in the Mexico plant currently are sold in the US—check out the back of a Wal-Mart trailer you see on the highway for the Hyundai logo… or this Hyundai Translead video.
As for Samsung Electronics, since the 1980s, with the construction of an electronics complex (SAMEX) in Tijuana, where TVs, color monitors, and mobile phones are currently being produced. Samsung Electronics Mexico (SEM), a local sales subsidiary, was established in 1995, and now the operation has been expanded to include refrigerator and air conditioner production. Samsung Electronics also has local production of side-by-side refrigerators, front-loading washing machines and other high-end appliances.
All said, Detroit’s Big Three automakers — GM, Ford and Chrysler — all have production plants in Mexico, and any hefty tariff would impact them as well. In addition, GM’s Korea plants produce cars for the US market.
With more questions that answers, I’ll be revisiting the impact of the elections as it unfolds over time. So stay tuned.
Oh one more thing-
Regarding North Korea, I see with President- elect Trump’s unpredictable, and aggressive way of thinking it may make Pyongyang more cautious about its military provocations.
Questions and comments welcome.
Trump and Trade, Part 2
“Trump?”—a question that surfaced often while I attended the 2016 LA Auto Show Media Days. I fielded questions from both Korean and American auto industry leadership on the impact of the election. Many had been following my daily posts and recent commentary.
See http://brandinginasia.com/trump-nafta-south-korea/
Assessing what next to share, I see several actions by the incoming U.S. administration.
First in contrast to the president-elect’s bold statements to take on NAFTA, I find the U.S. is less likely to purse extreme actions such the withdrawal from or a major renegotiation of the KORUS FTA.
That said, the U.S. is likely to strengthen “policy” measures that could restrict imports by imposing anti-dumping tariffs or countervailing duties. This is not new. For example, after a repeated pattern of pricing below cost by Samsung and LG on clothes washers over the years the Korean brands now pay hefty anti-dumping duties to offset margin and price advances over manufacturers and threatening American manufacturing jobs. The incoming president could direct the U.S. Department of Commerce to aggressively purse similar actions against Korean importers where local jobs are impacted.
The incoming president may also demand its trading partners revalue their currency, starting with those nations that we recently placed on its currency watch list. In April, the U.S. Treasury Department announced a list of countries on its watch list that includes South Korea it would closely monitor for any unfair trade practice. Weakening a currency can make goods produced for export more attractive however it leads to a trade deficient especially if the host country has a stronger currency as is the case with the Strong U.S. Dollar.
In recent days, the U.S. Dollar has continued to surge in value against currencies around the world following the election. Again, this may be good for American consumers buying foreign goods but makes U.S. manufacturing less competitive for export. As for the South Korean Won it has finally begun to strengthen against the Dollar following the shock U.S. election results.
More an issue than the Dollar to Won is if the U.S. targets and designates China as a currency manipulator and slaps up to 45-percent tariffs on Chinese imports to America. Korea will as a ripple effect suffer since their economy is increasing dependent on its export trade to China, which would slow.
Well-Stated Korean Concerns …
My longtime friend Yun Won-sik, who serves as the executive vice president for the Korea Trade-Investment Promotion Agency (KOTRA) recent statements capture the mood in Korea. He notes how major Korean exporters could potentially face increasingly unfavorable business conditions in the United States.
Oh, one more thing…
On the encouraging side, earlier this year the International Trade Commission (ITC) showed the KORUS FTA did have a positive effect on the American economy and improving the trade balance.
The report pointed out that the KORUS FTA led to a $15.7 Billion improvement in the U.S. trade balance in 2015. The U.S. posted a $28.3 billion trade deficit with South Korea that year, but it would have been $44 Billion without the bilateral free trade pact
Building on this and to counter the fallout of Trump’s protectionist trade policies, last week the Korean government has begun to mobilize resources in an effort to sway the incoming U.S. administration that the KORUS FTA is mutually beneficial and, in particular, how South Korean investments in the U.S. has stimulated American jobs over the years.
I, too, see this as a strong argument as one only has to travel Route 85 South from Georgia into Alabama to see the growth spurred by the Kia Motors Manufacturing Georgia and Hyundai Motor Manufacturing Alabama plants. The rise of Tier One and Two providers along the corridor and the boost to the local economy is hard to ignore. More so, for those of us who visited the area prior to the opening of the car plants.
Stay tuned to my updates as new developments unfold. Questions and comments welcome. Questions@Koreabcw.com