Why Trump and NAFTA has South Korean Companies Concerned

Several of Korea's most well-known brands such as Samsung and Hyundai, along with other lesser known names, have been manufacturing in Mexico for years.


Working a closely as I do with South Korean brands, it would not be fitting if I didn’t share my thoughts on the recent US presidential election of Donald Trump and its potential impact on Korea’s global business.

To many in South Korea the election results are troubling —yet another layer of concern amid the already troubling downturn in Korean exports. (Not to mention Korea’s particularly serious problems with their own executive branch in Seoul).  

While US military support for South Korea and dealing with North Korea top the list of alliance concerns, many are additionally concerned with Mr. Trump’s negative campaign rhetoric on what he claims are poorly negotiated FTAs with other nations and his intention to “fix” them.

Read more: Interview – Hyundai Brand Strategy Director Minsoo Kim on Hyundai’s rise and the Road Ahead

NAFTA affects Korean conglomerates such as Hyundai, Samsung and LG, all who operate plants there for local demand as well as export across the border to America.

On the South Korea trade agreement front, I have long been a supporter of KORUS FTA both prior to its ratification and have written a number of articles on the benefits of the treaty.

My clients, Hyundai Motor America, Kia Motors America and Mobis Parts America, all benefit from the treaty, although I’m told that now 60% of the two OEMs finished products sold in America are actually made in US plants.

However, the Korea-US FTA is not the only concern for South Korean companies, they are also keeping a steady eye on how the incoming administration deals with the long standing North American Free Trade Agreement (NAFTA) inked in 1994 between the US, Mexico and Canada.

NAFTA and Korea

Frankly, regarding Mr. Trump’s intentions, I am more concerned with trade agreements with Mexico than with those signed with South Korea. Namely due to the fact that NAFTA affects Korean conglomerates such as Hyundai, Samsung and LG, all who operate plants there for local demand as well as export across the border to America.

As for Samsung Electronics, since the 1980s they have been producing TVs, color monitors, and mobile phones at their manufacturing complex (SAMEX) in Tijuana.

As an example, a new Kia Motors Mexico plant opened earlier this year 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 other Korean firms expanding their manufacturing presence there.

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 import into Mexico.

In addition, and a less noted example, is Hyundai Motor Group affiliate Hyundai Translead. First developed under the maquiladora program, trailers made in the Mexico plant currently are sold in the US, Check out the back of the next Wal-Mart trailer you see on the highway for a Hyundai logo

As for Samsung Electronics, since the 1980s they have been producing TVs, color monitors, and mobile phones at their manufacturing complex (SAMEX) in Tijuana.

Samsung's SAMEX plant in Tijuana
Samsung’s SAMEX plant in Tijuana

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 than answers, we’ll all surely be revisiting the impact of the elections as things unfold so, stay tuned.

 

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