Investment Insights: How New Tariffs Shape Korea's Key Sectors?

Impact of Tariff Confirmation on the Korean Economy

An in-depth analysis based on Hana Financial Investment's latest report

Summary of the Tariff Confirmation Report

• Main Topic: Analysis of the mutual tariff negotiation results with the U.S. government (15% tariff rate confirmed) and its impact on key domestic industries (shipbuilding, semiconductors, automobiles).
• Key Points:
  • Tariffs on steel and aluminum remain at 50%, while other items are confirmed at 15%.
  • Korea proposed the creation of a $150 billion fund for the shipbuilding industry, a $200 billion fund for key industries like semiconductors/secondary batteries, and $100 billion in LNG and other energy purchases.
  • Shipbuilding is supported by Korea's plans for U.S. market entry and cooperation, with positive prospects for LNG carrier orders.
  • Semiconductor item-specific tariffs are still unconfirmed, but Korea expects non-discriminatory treatment, with high potential for increased U.S. investment.
  • Automobile tariffs decreased from 25% to 15%, expected to reduce annual costs by over 4 trillion KRW.
• Data/Statistics:
  • Korea's semiconductor exports to the U.S. in 2024 totaled $10.7 billion; a 15% tariff would result in an estimated 2.2 trillion KRW in tariffs.
  • Hyundai/Kia could face annual costs of 10 trillion KRW under a 25% tariff, reduced to 6 trillion KRW under a 15% tariff.
  • Samsung Electronics plans over $37 billion, SK Hynix $3.87 billion, and Absolics $343 million in U.S. investments.
• Strengths: Provides concrete figures and scenarios, detailed analysis of U.S. legislation (SHIPS for America Act).
• Potential Weaknesses: Some uncertainties remain regarding unconfirmed semiconductor tariffs and specific fund operation details for shipbuilding.

Mutual Tariff Confirmation: What's the Impact on the Korean Economy?

After intense negotiations with the U.S. government, the mutual tariff rate has been confirmed at 15%. What implications will this negotiation outcome have for Korea's key industries? Based on Hana Financial Investment's latest report, we delve into the ups and downs of the shipbuilding, semiconductor, and automobile industries, and analyze their profound impact on our economy.

1. The Core of Tariff Negotiations: 15% Confirmed, and a $450 Billion Fund

The most notable aspect of this negotiation is the reduction of the tariff rate from the previous 25% to 15% for most items, excluding steel and aluminum. This is expected to significantly alleviate the burden on Korean companies. Furthermore, Korea proposed to the U.S. 1) the creation of a $150 billion fund for the shipbuilding industry, 2) a $200 billion fund for key industries such as semiconductors and secondary batteries, and 3) the purchase of $100 billion in LNG and other energy products, laying the groundwork for mutual cooperation.

2. Shipbuilding: Paving the Way for U.S. Market Entry?

The Korean shipbuilding industry appears to be facing new opportunities for U.S. market entry. The $150 billion shipbuilding cooperation fund will support domestic shipbuilders' investments, loans, and guarantees in the U.S., likely linked to the 'Make American Shipbuilding Great Again (MASGA)' proposal. In particular, the positive outlook stems from the U.S. strategic sealift fleet (merchant fleet that can be mobilized for national security in emergencies) allowing foreign-built vessels to participate until 2030, potentially leading to increased orders for Korean shipyards. Furthermore, local LNG carrier construction and cooperation in the U.S. are also anticipated, linked to the $100 billion purchase of LNG and energy products.

However, the fact that the specific details of the fund's operation are yet to be confirmed is considered a potential weakness. Nevertheless, as domestic shipbuilders like HD Hyundai Heavy Industries and Hanwha Ocean are already actively pursuing cooperation and acquisitions with U.S. shipyards, this agreement is expected to accelerate the expansion of the Korean shipbuilding industry in the U.S. market.

3. Semiconductors: Opportunities Amidst Uncertainty

While item-specific tariffs for semiconductors are still unconfirmed, an investigation under Section 232 of the U.S. Trade Expansion Act is underway. However, the report anticipates that Korea will receive "non-discriminatory treatment" compared to other countries. It argues that imposing high tariffs on semiconductors would lead to increased iPhone prices in the U.S. or higher investment costs for servers/data centers, thus making it unlikely for the tariff rate to exceed the mutual tariff.

The memory semiconductor industry is heavily influenced by the balance of supply and demand, suggesting that the negative impact on final product demand due to tariffs might be limited. Notably, Korean semiconductor companies like Samsung Electronics and SK Hynix are already making significant investments in the U.S. under the CHIPS Act. With the formation of a $200 billion investment fund through this negotiation, further increases in U.S. investment are highly probable. This will serve as an opportunity for Korean semiconductor companies to strengthen their position in the U.S. market and expand advanced technology cooperation.

4. Automobiles: A Sigh of Relief for the Finished Vehicle Industry

One of the sectors benefiting most is the automobile industry. With the tariff rate reduced from 25% to 15%, Hyundai and Kia are expected to save over 4 trillion KRW annually in tariff costs. This means the burden, which could have reached 10 trillion KRW annually for finished vehicles, will be reduced to around 6 trillion KRW. Companies are projected to further reduce final costs through efforts such as expanding local production and increasing local sales prices.

With tariff uncertainties resolved, the stock prices of automobile companies have gained the potential to recover to global average levels. Currently, their P/E (Price-to-Earnings) ratio is in the low to mid-5s, which is 20% lower than the global industry average, and their dividend yield is also high at 5-6%. However, the report suggests that given the slow growth of the global automobile market and the sluggish pace of technological advancement in the electric and autonomous vehicle sectors, it may take time for stock prices to break through their previous resistance levels.

Investment Areas and Strategy Proposals

The confirmation of mutual tariffs presents investment opportunities, positively or negatively impacting specific industries. Below are potential investment areas and strategies based on the PDF content:

Shipbuilding Investment:

• Strategy: Consider investing in domestic shipbuilders (e.g., HD Hyundai Heavy Industries, Hanwha Ocean) that are strengthening their U.S. market entry and local cooperation. Pay particular attention to the potential for expanded LNG carrier construction and MRO (Maintenance, Repair, and Overhaul) businesses in the U.S.
• Potential Risks: Uncertainty regarding fund operation methods, potential delays in U.S. shipbuilding infrastructure development.

Semiconductor Company Investment:

• Strategy: Consider long-term investment in memory semiconductor companies (e.g., Samsung Electronics, SK Hynix) that are increasing U.S. investment and experiencing robust AI-related demand. Focus on their production capabilities for high-value-added products like HBM (High Bandwidth Memory).
• Potential Risks: Unconfirmed item-specific tariffs, volatility in the global semiconductor market supply and demand.

Automobile Finished Vehicle Company Investment:

• Strategy: Consider investing in finished vehicle companies like Hyundai and Kia, which have seen their cost burden reduced due to tariff cuts. Expect valuation recovery potential, and their dividend yields are also attractive factors.
• Potential Risks: Slow growth in the global automobile market, sluggish pace of technological development in electric and autonomous vehicles.

Policy Financial Institution Related Investment:

• Strategy: Exploring financial products related to policy financial institutions such as the Export-Import Bank of Korea and Korea Trade Insurance Corporation, which are likely to participate in the shipbuilding fund, could be an option.
• Potential Risks: Impact of policy changes, potentially limited direct investment products.

Disclaimer: This article is for general informational purposes only and does not constitute personal investment advice. Professional consultation is recommended before making any investment, and all investments carry the risk of loss.