Samsung and LG Consider Moving Mexican Production to the US Due to Tariff Concerns

This is not investment advice. The author holds no positions in any of the stocks mentioned.

Implications of Proposed Tariffs on Mexico for South Korean Firms

Following President Trump’s election victory, his plans for imposing tariffs on Mexico could significantly impact U.S.-Mexico trade relations. The goal of these tariffs is to negotiate greater control over the influx of drugs and immigration into the United States. Major South Korean companies, including Samsung, LG, Hyundai, and Kia, are now reportedly contemplating relocating their production facilities away from Mexico to either the United States or South Korea.

Concerns Over Economic Policies and Supply Chains

These firms are expressing apprehensions regarding potential changes to subsidies and grants arising from the previous administration’s Inflation Reduction Act (IRA) and the CHIPS and Science Act. Such changes could emerge either through outright repeal or a protracted disbursement timeline, as highlighted by reports from the Korea Economic Daily.

The Ripple Effects on the Technology Sector

While the potential tariffs on imports from Mexico, Canada, and other nations provoke fears of rising inflation, their repercussions on the technology industry warrant further discussion. Numerous technology firms maintain data center equipment manufacturing in Mexico due to its cost advantages, enabling them to provide competitively priced goods for the U.S. market.

According to a report by the Korea Economic Daily, these concerns are prompting Korean manufacturers to reassess their operational strategies. Notably, Samsung, LG, Kia, and Hyundai are all considering relocating some production back to the U.S. or to South Korea.

Specific Production Shifts: Samsung and LG

Samsung, a leading conglomerate, currently produces dryers in Queretaro, Mexico. The looming tariff threats are leading them to contemplate shifting this production to South Carolina, where they already manufacture washing machines. This transition is likely to be streamlined, as the production processes for both appliances share considerable similarities.

Similarly, LG is reportedly planning to move aspects of its home appliance production. This includes relocating refrigerator and television manufacturing from Mexico to Tennessee, where the company has acquired land for building four new plants. An industry insider suggests that this move will enhance LG’s agility in adjusting to changing market demands.

Automotive Production Growth in the U.S.

In addition to technology firms, automotive manufacturers such as Hyundai and Kia are also responding to the tariff threat by ramping up U.S. production. LG Energy, a company specializing in electric vehicle batteries, is exploring strategies to adapt to tariffs targeting Canadian imports, aligning its plans with a new plant construction in collaboration with Stellantis.

Strategic Trade Negotiations and Future Directions

A primary objective of the Trump administration centers on minimizing the trade deficit with key international partners. Analysts suggest there could be strategic leverage involving NVIDIA’s GPUs, which might be utilized in negotiations with China to encourage increased purchases of American exports, such as soybeans. The previous administration’s comprehensive export control regulations were designed to restrict access to advanced American AI technology amid national security considerations.

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