Former U.S. President Donald Trump, who has been officially named the Republican presidential nominee, is sending shockwaves across the global economy with his remarks about reducing semiconductor and battery subsidies and his blatant protectionist rhetoric. Semiconductor stocks in Taiwan, South Korea and the U.S. tumbled after Trump said, “Taiwan should pay us for defense.” He added, “We’re no different than an insurance company. Taiwan doesn’t give us anything.” While his comments may not be the sole cause of stock price declines, they have undoubtedly contributed to market volatility.
The U.S. government previously encouraged investments from memory chipmakers like Samsung Electronics and SK Hynix by promising subsidies under laws such as the Chips Act. These companies made substantial investments based on these assurances. Now, Trump is proposing to alter the Chips Act and potentially cut those subsidies or impose unreasonable investment requirements to maintain them.
Trump’s pledge to eliminate electric vehicle (EV) mandates and reduce subsidies poses a significant threat to Korean car and battery manufacturers who have invested billions of dollars in the U.S. This uncertainty is already negatively impacting their stock prices. Trump has also announced plans to impose a universal 10% tariff on all imports. The Korea Institute for International Economic Policy estimates this could reduce South Korea’s exports to the U.S. by $15.2 billion. Additionally, Trump might use South Korea’s trade surplus with the U.S. as a pretext to demand a renegotiation of the Korea-U.S. Free Trade Agreement. His economic policies are inherently aggressive and could strain bilateral relations.
Trump’s foreign policy rhetoric is equally alarming. His statements about his rapport with North Korean leader Kim Jong-un have raised concerns. The former president said he “got along great” with Kim when he was in office, and he thinks Kim “misses me.” South Korea may have to prepare for Trump to stage another summit with Kim and potentially eliminate U.S.-South Korea joint military drills. He may also demand an increase in South Korea’s defense cost-sharing, currently around $1 billion annually, to several billion dollars. He may frequently threaten to withdraw U.S. troops from South Korea and, in the process, actually reduce them. There is speculation that Trump could reverse all of Biden’s policies. The joint statement released after the U.S., Korea and Japan held a trilateral summit at Camp David last August could be rendered meaningless.
If Trump is elected president, South Korea will have to emphasize the mutual benefits of subsidies for South Korean companies, highlighting how they boost U.S. investment and employment and that U.S.-South Korean cooperation in high-tech sectors is crucial for countering China’s influence. To avoid Trump making risky deals with Kim Jong-un, the Korean government must communicate with Trump in a persistent and constructive manner.
The agreement to integrate U.S. nuclear weapons with South Korea’s conventional arsenal should be quickly reflected in actual operational plans. Trump has previously said he is open to the idea of South Korea and Japan developing their own nuclear capabilities. South Korea must be prepared to consider ways to strengthen nuclear capabilities while accommodating Trump’s demands.
