TSMC's $100 billion bet puts Korea in U.S. investment dilemma

U.S. President Donald Trump has signed an executive order imposing an additional 20% tariff on Chinese imports. The delayed 25% tariff on Canadian and Mexican products also took effect yesterday. On the same day, Taiwan's TSMC, the world’s largest semiconductor foundry, pledged a $100 billion investment in the U.S., earning Trump’s praise. Meanwhile, South Korea’s semiconductor companies face a threefold dilemma: a lack of policy control tower, a downturn in the semiconductor market, and the potential reduction of U.S. government subsidies. These factors have left them in a difficult position regarding investment decisions in the U.S.

With the latest tariff increase—an additional 10% on top of the 10% already imposed since April 4—Chinese exports to the U.S. are set to take a serious hit. South Korea’s intermediate goods and components exports to China, including semiconductors and machinery, are also likely to shrink. Additionally, more than 200 South Korean companies operating in Canada and Mexico will suffer from the non-exempted tariffs on goods from those countries.

As it becomes evident that these tariff measures are not mere negotiation tactics or threats, governments and businesses worldwide are moving swiftly. TSMC has pledged a four-year, 146 trillion won ($100 billion) investment in the U.S., promising to build five additional factories. Trump hailed this move: "TSMC is far ahead in the game, as they no longer have to pay tariffs.” Through a summit with the U.S., Japan has vowed to increase its cumulative investment in the U.S. from $800 billion to $1 trillion, aiming to secure tariff exemptions for Japanese steel and automobiles.

South Korean companies find themselves in a bind. TSMC, which manufactures AI chips for U.S. company Nvidia, posted record-breaking profits exceeding 50 trillion won last year, leaving it ample investment capacity. In contrast, South Korean memory semiconductor makers are struggling due to price drops caused by Chinese dumping of generic semiconductors, leading to the first decline in exports in 16 months and shrinking profits. On top of that, subsidies promised to Samsung Electronics and SK hynix under the Biden administration’s CHIPS Act remain uncertain. Given these circumstances, increasing U.S. investments would be financially burdensome due to high local production costs. However, postponing them could result in losing market share to competitors who proactively invest and mitigate tariff risks.

Despite South Korean companies facing immense pressure to invest in the U.S., the government—embroiled in political turmoil over martial law and impeachment proceedings—has failed to establish a comprehensive strategy for negotiations with the U.S. If this indecisiveness persists, what could have been prevented with minor adjustments may spiral into an uncontrollable “tariff disaster.”