US 100% Semiconductor Tariff Threat Rattles South Korea

New Tariff Threat Creates Uncertainty After Recent Trade Deal

SEOUL – Merely three months after South Korea celebrated securing a trade deal with the United States to lower reciprocal tariffs from 25 per cent to 15 per cent, fresh uncertainty has set in. At a groundbreaking ceremony for Micron Technology’s new semiconductor plant in Syracuse, New York, on Jan 16, US Commerce Secretary Howard Lutnick threatened new levies for companies exporting chips to the US.

Lutnick’s comments have sparked fresh concerns in South Korea about the possible impact of such a high tariff on its semiconductor industry, which is the backbone of the country’s export-driven growth, making up 20 per cent of total exports and earning it the moniker “rice of the electronics industry”.

South Korean chip exports to the US surged 30 per cent in 2025 to hit US$13.8 billion (S$17.6 billion), or 8 per cent of the country’s total chip exports, buoyed by demand driven by the artificial intelligence (AI) sector. It is the country’s second-largest export to the US after automobiles.

Despite the concerns, however, analysts are suggesting prudence before action, particularly as South Korean companies dominate the global memory chip market and the US holds only a small share of global chip production, compelling it to import large quantities of the chips it needs.

What Are Semiconductors and Why Are They Important?

Semiconductors have enabled a slew of modern devices – from smartphones and laptops to video game consoles, pacemakers and solar panels. Sometimes referred to as microchips or integrated circuits, they are made from tiny fragments of raw materials, such as silicon.

As the name suggests, semiconductors can partially conduct electricity – alternating between doing so and acting as an insulator. This allows them to be used as electronic switches, speaking the binary language of 0s and 1s that underpins computing. Without these tiny chips, virtually no modern electronic device would function.

The global semiconductor industry is valued at over $600 billion and represents the foundation of the digital economy. South Korean chipmakers, together with their Taiwanese counterparts, account for 80 per cent to 90 per cent of global production. While Taiwan’s companies specialise in advanced chips used for high-performance computing and AI, South Korea’s firms specialise in memory chips which store data and are critical components in AI data centres and cloud computing infrastructure.

With this dominance comes significant market power – something South Korea may leverage in the face of US tariff threats.

Understanding the Tariff Threat: What Trump and Lutnick Said

The Trump administration’s tariff threat came through multiple channels. Speaking at events surrounding Micron’s new facility, Commerce Secretary Lutnick delivered a blunt ultimatum to global chipmakers.

“Everyone who wants to build memory has two choices: They can pay a 100 per cent tariff, or they can build in America,” Mr Lutnick had said, repeating comments made a day earlier in an interview with CNBC.

President Trump later elaborated on the policy during a White House event where Apple CEO Tim Cook announced plans to boost investment in the United States. “We’ll be putting a tariff of approximately 100 percent on chips and semiconductors,” Trump said, adding that companies manufacturing in the US would not face the levies.

If you have made a commitment to build or are in the process of building, as many are, there is no tariff. If for some reason you say you are building and you don’t build, we go back and add it up, it accumulates, and we will charge you at a later date. You have to pay.

The US imported more than $60 billion worth of semiconductors in 2024, including more than $50 billion from Asia. Leading suppliers include Taiwan, Malaysia, Vietnam, the European Union, Thailand, South Korea and Japan. China exported about $2 billion worth of chips to the US last year, primarily used in automotive manufacturing.

The European Union secured a commitment that it would only face a 15 percent tariff on semiconductors as part of its recent trade deal with Trump. South Korea and Japan appear to have won a similar commitment as well, though the details remain unclear.

South Korea’s Government Response: Playing Down Concerns

South Korean President Lee Jae Myung has been at the forefront of the country’s response to the tariff threat. In a New Year’s address on Jan 21, he downplayed the anxiety, saying that a 100 per cent levy on semiconductor imports would only sharply raise prices of chip products in the US.

There is talk of a 100% tariff on semiconductors, but I’m not seriously concerned about that. Rough waves come, but they are not severe enough to damage the ship.

President Lee emphasized that South Korean and Taiwanese chipmakers’ dominance of the market (80 to 90 percent) means most tariff costs would likely be passed on to US consumers rather than absorbed by manufacturers.

“They have a monopoly of 80 to 90% … so most of it is likely to be passed on to U.S. prices,” Lee told a news conference.

The South Korean government has pointed to existing safeguards under its trade agreement with the US to ensure its chipmakers would not be left at a disadvantage to Taiwanese or any other global competitors. “We have already reached agreements to ensure that South Korea will not be placed at a disadvantage compared to Taiwan in such cases,” Lee stated.

Industry Reactions: Mixed Responses from Market Leaders

South Korea’s top trade envoy Yeo Han-koo provided some clarification, saying on radio that among various countries, South Korea will face the most favourable U.S. tariff rates on chips under the trade deal between Washington and Seoul. He did not elaborate further on the specifics.

South Korean analysts have expressed varying degrees of concern about the tariff threat. A Korea Times editorial on Jan 19 slammed the “aggressive and unilateral tariff push targeting Korea’s most critical industry” as deeply counterproductive, pointing out that a globally competitive South Korean semiconductor industry is not a threat to US interests but “a strategic asset in a shared effort to stabilise global supply chains and counter external risks”.

Daegu University Associate Professor of Economics and Finance Kim Yang-hee called a 100 per cent semiconductor tariff “simply unrealistic”.

For US Big Tech companies already struggling with semiconductor shortages, a 100 per cent tariff would be unbearable.

Prof Kim suggested that South Korean chipmakers could leverage long-term supply contracts with their US Big Tech clients to demand tariff stability from the US government, given that the US companies would not want to suffer increased costs as well.

Noting that the US Supreme Court has yet to rule on the legality of Mr Trump’s tariff policy, enacted in 2025 under emergency powers without congressional approval, she said: “Given the current high level of uncertainty, rather than moving rashly, it would be better (for the affected companies) to watch the outcome of the court ruling and the direction of the US midterm elections in November before making decisions.”

Economic Impact: Tariff Threats Amid Global Chip Shortage

The tariff threat comes at a particularly precarious moment for global technology markets. Memory chip prices are already projected to surge 40% to 50% in the first quarter of 2026, with analysts expecting steep pricing to persist through 2027 as manufacturers prioritize high-margin HBM chips for AI applications over commodity memory used in consumer electronics, smartphones, and standard data centre equipment.

The semiconductor industry is experiencing what Bank of America analysts describe as a “super cycle” similar to the boom of the 1990s, with global DRAM revenue forecast to surge 51% in 2026 and average selling prices rising 33%. The HBM market specifically is expected to reach US$54.6 billion in 2026, a 58% increase from the previous year.

US Commerce Secretary Lutnick’s ultimatum threatens to worsen this supply-demand imbalance by potentially disrupting established production networks and forcing manufacturers to choose between paying prohibitive duties or making massive capital commitments to US facilities that will take years to come online.

“High-bandwidth memory is critical to the development of AI. SK Hynix’s capacity for this year is already sold out, giving it leverage to hold the line on a product that customers need,” noted Troy Stangarone from the Carnegie Mellon Institute for Strategy and Technology.

With semiconductors used in virtually every modern product and the US holding a relatively small share of global production, Stangarone said such tariffs would only raise input costs, at a time when the Trump administration is already grappling with domestic affordability concerns.

US-Taiwan Trade Deal: A Benchmark for South Korea?

A US official has since said that the US administration will be seeking separate semiconductor tariff agreements for separate countries. The newly inked US-Taiwan trade deal on Jan 15 includes a chip tariff exemption arrangement that offers a buffer from the latest tariff threats, suggesting that these threats are targeted at South Korea’s Samsung and SK Hynix, which dominate the global memory chip market with a 60 per cent share while US firm Micron holds 20 per cent of market share.

The US-Taiwan trade deal not only sees Taiwan pledging US$250 billion in investments in the semiconductor, energy and AI sectors, but also an additional US$250 billion in credit guarantees for Taiwanese chipmakers to support “the establishment and expansion of the full semiconductor supply chain and ecosystem in the US”.

In return, reciprocal tariff rates were slashed from 20 per cent to 15 per cent. Additionally, Taiwanese chipmakers that expand in the US will be able to import up to 2½ times their new capacity in the US of semiconductors and wafers with no extra tariffs.

Taiwan’s TSMC, the world’s largest producer of advanced AI chips, is building a gigafab cluster in the state of Arizona and has pledged a further US$56 billion investment in new facilities in the coming year.

South Korea’s Samsung Electronics is currently pouring US$37 billion into building a foundry in Texas state, while SK Hynix has plans for a US$3.87 billion facility in the state of Indiana. However, with both companies also building a massive 600 trillion won (S$528 billion) semiconductor cluster in South Korea’s Gyeonggi province, the question is whether South Korean chipmakers have the capacity to match Taiwan’s investment pledges in the US.

Strategic Leverage: South Korea’s Market Position

Analysts say the tariff threat is likely a high-pressure negotiating tactic aimed at drawing the world’s top chipmakers to move production to the US, with the recently sealed US-Taiwan trade deal seen as a possible benchmark for South Korea.

Non-resident fellow Troy Stangarone from the Carnegie Mellon Institute for Strategy and Technology in Pennsylvania told The Straits Times: “The Trump administration has a history of using tariffs as negotiating leverage. While this is currently just a threat, the Trump administration’s objective is to secure more investment in semiconductor production in the United States.”

South Korea has already pledged US$350 billion in mainly shipbuilding-related investments in the US, in a deal sealed by US President Donald Trump and his South Korean counterpart Mr Lee on the sidelines of the APEC meetings in Gyeongju in October 2025. Part of the deal was that South Korean semiconductors would not receive less favourable treatment than those of economies with comparable trade volume, which implicitly refers to Taiwan.

But how the clause in the agreement is to be interpreted is unclear. South Korea could leverage its dominant market share of high-bandwidth memory chips as leverage instead, Stangarone suggested.

Since Korea has already negotiated a deal with the United States, it should hold firm to its position and expect the United States to honour its agreement.

The global memory chip market remains tightly controlled by South Korean companies. Samsung Electronics and SK Hynix, both South Korean firms, together with US-based Micron control 79% of the global high bandwidth memory market, which is particularly important for AI data centers.

Future Scenarios: Possible Outcomes and Diplomatic Paths

Several scenarios could unfold in the coming weeks and months as the US administration clarifies its tariff policy. The most likely outcomes include:

• Formal exemptions for companies investing in US facilities, which would apply to Samsung and SK Hynix given their existing investment plans
• Negotiated tariff rates similar to those secured by Taiwan, the EU, and Japan
• A temporary implementation period allowing companies time to adjust their production strategies
• Legal challenges based on the Section 232 national security justification for the tariffs

South Korea has indicated it will seek to discuss favorable terms for U.S. tariffs on imports of memory chips, with a presidential office spokesperson confirming ongoing diplomatic efforts.

The Trump administration faces its own constraints. The Semiconductor Industry Association has warned that “untargeted tariffs” could backfire on the US “by raising the cost of developing technology and manufacturing chips at home.”

Moreover, major US companies like Apple, which announced plans to supply chips from Samsung’s Texas plant for its products, would be directly affected by significant tariff increases. Such costs would likely be passed on to consumers, potentially undermining the administration’s focus on affordability.

Looking ahead, South Korea’s semiconductor industry may need to balance its response between resisting coercive trade pressure while recognizing the strategic importance of maintaining good relations with the United States.

Since Korea has already negotiated a deal with the United States, it should hold firm to its position and expect the United States to honour its agreement.

The Bottom Line

• US Commerce Secretary Howard Lutnick threatened 100% tariffs on semiconductor imports unless companies build manufacturing facilities in America
• South Korea’s semiconductor industry makes up 20% of total exports and is crucial to the country’s economy
• South Korean chipmakers dominate the global memory chip market with 60% share, giving them significant pricing power
• President Lee Jae Myung downplayed the tariff threat, suggesting costs would be passed to US consumers
• The US-Taiwan trade deal sets a precedent with tariff exemptions and substantial investment commitments
• Samsung and SK Hynix have existing US investments that could qualify them for exemptions
• The tariff threat comes amid a global chip shortage with memory prices already projected to surge 40-50% in early 2026
• Legal challenges and midterm election outcomes could significantly impact the tariff implementation