President Donald Trump signed an executive order on Feb. 1 to impose a 25% new tariff on imports from Mexico and Canada, effective Feb. 4. Previously, the United States, Mexico, and Canada operated under a de facto tariff-free system. This move is expected to significantly impact South Korean companies that have expanded investments in Mexico and Canada to target the U.S. marke
As of the first half of last year, 525 S. Korean firms, including Samsung Electronics, LG Electronics, Kia, POSCO, and HL Mando, have operations in Mexico. Since 2022, S. Korean companies have invested over $1 billion annually in Mexico, with 37 firms establishing subsidiaries there in 2023 alone. In Canada, LG Energy Solution has invested nearly $1.5 billion, and companies like POSCO Future M and Hanon Systems have also established a presence.
Choi Seok-young, an advisor at law firm Gwangjang and former Free Trade Agreement negotiator, noted that if U.S. tariffs lead to retaliatory measures from other countries, it could escalate into a “tariff war,” severely disrupting global supply chains.
S. Korea is the second-largest Asian investor in Mexico after Japan. According to the Export-Import Bank of Korea, S. Korea’s investment in Mexico from January to September last year amounted to $1.2 billion, ranking Mexico as the eighth-largest destination for S. Korean overseas investment, surpassing investments in China.
A business industry representative stated, “S. Korean companies have expanded investments in Mexico primarily because of the United States. As U.S. trade sanctions against China intensified, companies chose Mexico, which offers tariff-free benefits when exporting to the U.S. and has lower labor costs, as a production base.”
In the first 11 months of last year, Kia’s plant in Mexico produced 253,000 vehicles, and more than half of them—129,000 units—were sold in the U.S. During the same period, about 18% of all Kia vehicles sold in the U.S. (roughly 723,000 units) came from this Mexican factory. With the European market struggling due to an economic downturn, Kia has been performing well in the U.S., and its production facility in Mexico has been a key part of that success.
Lee Hang-gu, a researcher at AINs, commented, “The imposition of tariffs on Mexican imports will increase the prices of parts and finished vehicles, leading to a ripple effect that will impact the entire S. Korean automotive industry operating in North America.”
Samsung Electronics operates home appliance and TV factories in Querétaro and Tijuana, Mexico, respectively. LG Electronics has production facilities in Reynosa (TVs), Monterrey (refrigerators), and Ramos (automotive components).
Companies that have invested in Canada, attracted by its abundant battery-critical minerals like nickel and cobalt and the previously tariff-free access to the U.S. market, are now facing challenges. LG Energy Solution, in partnership with automaker Stellantis, began mass-producing battery modules at their joint venture ‘NextStar Energy’ in Ontario last October. POSCO Future M is constructing a cathode material plant, and Hannon Systems is developing an auto parts factory in Canada.
Experts warn that the trade conflict initiated by Trump’s tariffs could cause a chain reaction, disrupting global supply chains. High tariffs not only directly affect product prices but also influence corporate decisions on relocating production bases and restructuring business operations.
In an Oct. 2024 report, the Korea Institute for International Economic Policy projected that if the U.S. imposes universal tariffs on countries like S. Korea and major nations retaliate, S. Korea’s exports could drop by as much as $44.8 billion. Industry insiders warn that the actual damage could be even greater. If China, in a strong counter-response, tightens export controls on critical raw materials like rare earth elements, it could disrupt supply chains across U.S. industries, with S. Korea also feeling the impact.
