US 100% Chip Tariff Threat Tests South Korea's Trade Deal and Memory Market Power

Seoul Faces a New Test After Its Tariff Deal

South Korea exported US$13.8 billion (S$17.6 billion) worth of semiconductors to the United States in 2025, up 30 per cent from the previous year. That business now faces fresh uncertainty after US Commerce Secretary Howard Lutnick threatened a 100 per cent tariff on chips unless their manufacturers build in America.

Lutnick delivered the warning on Jan 16 at the groundbreaking ceremony for Micron Technology's new semiconductor plant in Syracuse, New York. His comments came roughly three months after Seoul secured a trade agreement reducing US reciprocal tariffs from 25 per cent to 15 per cent.

As of Jan 26, 2026, South Korea is relying on that agreement, existing investments by Samsung Electronics and SK Hynix, and its strength in memory production to protect its industry. President Lee Jae Myung has played down the threat, arguing that American buyers would bear much of the cost.

The stakes extend beyond the chips shipped directly to America. Semiconductors account for 20 per cent of South Korea's total exports and underpin its growth, earning them the description "rice of the electronics industry". The US bought 8 per cent of South Korean chip exports in 2025, supported by demand for artificial intelligence (AI). Chips were South Korea's second largest export to the US after automobiles.

Washington wants more semiconductor production on American soil. Seoul wants Washington to honour the terms already negotiated. Between those positions sit technology companies that need chips now, manufacturers funding expensive factories, and consumers facing higher electronics prices.

What Lutnick and Trump Have Said

Lutnick framed the choice facing memory manufacturers as a decision between paying a heavy import tax and investing in US production. At the Micron event, he repeated comments made a day earlier in an interview with CNBC:

Everyone who wants to build memory has two choices: They can pay a 100 per cent tariff, or they can build in America.

President Donald Trump also described a broad semiconductor tariff at a White House event where Apple chief executive Tim Cook announced plans to increase investment in the United States.

We'll be putting a tariff of approximately 100 percent on chips and semiconductors.

Trump said companies manufacturing in the US would avoid the levy. He also extended that promise to companies committing to construction, while warning that unfulfilled promises could bring charges later.

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.

A tariff is a tax on imports. A 100 per cent rate would add a duty equal to the imported product's value. How much of that extra cost reaches the final buyer depends on the prices manufacturers and customers agree.

The precise terms of the threatened levy, its starting date and the exemptions available to South Korean manufacturers had not been settled. A US official said Washington would seek separate semiconductor tariff agreements with individual countries.

Why These Tiny Components Matter So Much

Semiconductors make smartphones, laptops, video game consoles, pacemakers and solar panels work. Also called microchips or integrated circuits, they are made from tiny pieces of materials such as silicon.

These materials can conduct electricity under some conditions and act as insulators under others. That lets them function as electronic switches, handling the 0s and 1s that computers use to process information. Virtually no modern electronic device would function without chips.

The global semiconductor industry is valued at more than US$600 billion. South Korean and Taiwanese chipmakers account for an estimated 80 to 90 per cent of production in the market description underlying Seoul's response. Their specialities differ: Taiwanese companies focus on advanced computing and AI chips, while South Korean firms specialise in memory, which stores the data used in AI data centres and cloud computing.

Samsung and SK Hynix together hold 60 per cent of the global memory chip market, compared with Micron's 20 per cent. Samsung, SK Hynix and Micron together control 79 per cent of the market for high bandwidth memory (HBM), a type particularly important to AI data centres. These figures describe different markets: memory broadly, and the HBM segment within it.

The US has a relatively small share of global chip production and depends heavily on imports. It imported more than US$60 billion in semiconductors in 2024, including more than US$50 billion from Asia. Leading suppliers included Taiwan, Malaysia, Vietnam, the European Union, Thailand, South Korea and Japan. China supplied about US$2 billion, primarily chips used in automotive manufacturing.

Lee Says American Prices Would Rise

Lee used his Jan 21 New Year's remarks and news conference to reassure South Korea that its manufacturers retain considerable bargaining power. He argued that a steep tariff would sharply increase the price of chip products in America.

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.

Lee based that confidence on the concentration of production among South Korean and Taiwanese manufacturers. American customers would have limited alternatives if they needed to replace those supplies.

They have a monopoly of 80 to 90% ... so most of it is likely to be passed on to U.S. prices.

Seoul also points to safeguards in its trade agreement. Lee said South Korea had already negotiated protection against receiving worse treatment than Taiwan.

We have already reached agreements to ensure that South Korea will not be placed at a disadvantage compared to Taiwan in such cases.

South Korea's top trade envoy, Yeo Han-koo, said in a radio interview that the agreement would give South Korea the most favourable US tariff rates on chips among the countries involved. He did not explain the specific arrangements.

What Seoul Already Agreed With Washington

Trump and Lee sealed their trade agreement on the sidelines of the Asia-Pacific Economic Cooperation (APEC) meetings in Gyeongju in October 2025. South Korea pledged US$350 billion in investments in the United States, mainly related to shipbuilding.

The agreement reduced reciprocal tariffs from 25 per cent to 15 per cent. It also provided that South Korean semiconductors would receive treatment no less favourable than chips from economies with comparable trade volumes, a reference understood to include Taiwan.

The European Union secured a commitment to a 15 per cent semiconductor tariff in its trade agreement with Trump. South Korea and Japan appeared to have obtained similar commitments, although the details remained unclear.

Seoul's immediate challenge is interpreting its protection alongside Washington's new demands for investment. A promise of comparable treatment becomes especially consequential when another economy negotiates exemptions tied to new factories rather than a single tariff rate.

The main dates show how quickly the pressure has developed:

• October 2025: Trump and Lee sealed the agreement in Gyeongju, including investment commitments and semiconductor treatment safeguards.
• Jan 15, 2026: The US and Taiwan reached a trade agreement with investment commitments and chip tariff exemptions. Lutnick also gave his tariff warning in a CNBC interview.
• Jan 16: Lutnick repeated the warning at Micron's groundbreaking ceremony in Syracuse.
• Jan 19: A Korea Times editorial criticised the tariff push.
• Jan 21: Lee publicly played down the threat and pointed to South Korea's existing agreement.

Taiwan's Agreement Sets a Benchmark

Taiwan's Jan 15 agreement combines lower reciprocal tariffs with large financial commitments. Taiwan pledged US$250 billion in semiconductor, energy and AI investments, plus another US$250 billion in credit guarantees for Taiwanese chipmakers.

The guarantees are intended to support "the establishment and expansion of the full semiconductor supply chain and ecosystem in the US". The investment pledge and credit guarantees together amount to US$500 billion, although guarantees support financing rather than representing the same thing as direct investment.

Washington reduced Taiwan's reciprocal tariff rate from 20 per cent to 15 per cent. Taiwanese chipmakers expanding in America will also be able to import semiconductors and wafers equivalent to as much as two and a half times their new US capacity without extra tariffs. Wafers are the material on which chips are made.

TSMC, the world's largest producer of advanced AI chips, is building a gigafab cluster in Arizona, a large grouping of chipmaking facilities. It has pledged a further US$56 billion for new facilities in the coming year.

Taiwan's exemption arrangement gives its manufacturers a buffer against the latest threats. Lutnick's focus on memory has drawn particular attention to Samsung and SK Hynix, whose main American competitor is Micron.

For Seoul, the comparison involves both the tariff rate and the conditions attached to avoiding it. Its agreement promises favourable treatment, while Taiwan's agreement sets out an import allowance linked directly to additional US production capacity.

Samsung and SK Hynix Already Have US Projects

Samsung is investing US$37 billion in a foundry in Texas. A foundry manufactures chips, including chips designed by other companies. SK Hynix plans a US$3.87 billion facility in Indiana.

Those projects give both companies a basis for seeking exemptions under Trump's stated approach. His comments included companies that have committed to building or are already doing so.

Apple has announced plans to obtain chips for its products from Samsung's Texas plant. That connection shows how the investment decisions of Korean manufacturers also affect the supply plans of major American companies.

Samsung and SK Hynix are simultaneously building a semiconductor cluster worth 600 trillion won (S$528 billion) in South Korea's Gyeonggi province. Those commitments raise a practical question about how much additional US investment they can undertake alongside their domestic plans.

New factories take years to begin production. Even a decision to spend more in America would leave an interval during which customers continue relying on existing production networks abroad. The tariff threat therefore reaches both future factory locations and the cost of chips already needed by American buyers.

A Memory Shortage Makes the Threat More Costly

Memory prices are already projected to increase by 40 to 50 per cent in the first quarter of 2026. Analysts expect steep pricing to continue through 2027 as manufacturers prioritise HBM for AI applications over ordinary memory used in consumer electronics, smartphones and standard data centre equipment.

HBM is memory designed to move large amounts of data quickly. AI systems need that speed to keep their computing chips supplied with information. Manufacturers are directing more capacity towards these products because they bring higher profit margins.

Bank of America analysts describe the semiconductor market as entering a "super cycle" similar to the boom of the 1990s. They forecast global revenue from dynamic random access memory (DRAM), a widely used form of working memory, to rise 51 per cent in 2026, with average selling prices increasing 33 per cent.

The HBM market is forecast to reach US$54.6 billion in 2026, up 58 per cent from the previous year. Strong AI demand is therefore meeting limited supply before any new tariff is added.

Troy Stangarone, a non-resident fellow at the Carnegie Mellon Institute for Strategy and Technology in Pennsylvania, said that supply position strengthens SK Hynix's hand. In comments to The Straits Times, he explained:

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.

Stangarone said tariffs would raise input costs across products that use semiconductors, while the Trump administration is already dealing with domestic affordability concerns. A heavy duty would arrive on top of rising memory prices, adding pressure on technology companies and their customers.

Calls for Patience and Supply Guarantees

Kim Yang-hee, an associate professor of economics and finance at Daegu University, described a 100 per cent semiconductor tariff as "simply unrealistic". She pointed to the difficulties it would create for American technology companies already facing limited supplies.

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

Kim suggested that Korean chipmakers use their long term supply contracts with major US technology clients to press Washington for tariff stability. Those customers also have an interest in avoiding sudden cost increases and disruptions to chip deliveries.

The Jan 19 Korea Times editorial called the "aggressive and unilateral tariff push targeting Korea's most critical industry" deeply counterproductive. It described a competitive Korean semiconductor sector as "a strategic asset in a shared effort to stabilise global supply chains and counter external risks" rather than a threat to American interests.

The Semiconductor Industry Association has also warned that "untargeted tariffs" could backfire on the United States "by raising the cost of developing technology and manufacturing chips at home." Its concern extends to the American operations Washington wants companies to expand.

Stangarone described the pressure as part of Washington's effort to attract investment:

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.

He also urged Seoul to rely on the agreement it has already secured.

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.

Legal Decisions and Negotiations Still Matter

South Korea intends to discuss favourable terms for US tariffs on memory chip imports, with a presidential office spokesperson confirming continuing diplomatic efforts. Negotiations could produce formal exemptions for manufacturers investing in America, rates comparable to those secured by Taiwan, the EU and Japan, or a transition period allowing companies to adjust.

Legal challenges involving the Section 232 national security justification for semiconductor tariffs are another possible outcome. Separately, the US Supreme Court had yet to rule on the legality of Trump's tariffs imposed in 2025 through emergency powers without congressional approval.

Kim urged companies to consider both that pending judgment and the US midterm elections in November before making major decisions under pressure.

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.

Seoul's position rests on three concrete advantages: an existing trade agreement, major factory investments already planned in America, and memory chips that US customers need. Washington's pressure rests on access to its market and the prospect of sharply higher import costs.

South Korean manufacturers must weigh those competing pressures while funding production at home and maintaining commercial and strategic ties with the United States. The immediate task is to turn broad promises about favourable treatment and investment exemptions into terms that companies can use when planning production and pricing.

The Bottom Line

• Lutnick threatened a 100 per cent tariff on memory chips unless manufacturers build in the United States.
• South Korea exported US$13.8 billion in chips to the US in 2025, up 30 per cent. Semiconductors account for 20 per cent of its total exports.
• Lee says Korean and Taiwanese production strength would push much of the tariff cost onto American buyers.
• Seoul's October 2025 trade agreement promises semiconductor treatment no less favourable than that given to comparable economies.
• Taiwan secured investment-linked exemptions alongside US$250 billion in investment pledges and US$250 billion in credit guarantees.
• Samsung's US$37 billion Texas project and SK Hynix's US$3.87 billion Indiana plan could support requests for exemptions.
• Memory prices are forecast to rise 40 to 50 per cent in the first quarter of 2026, adding to concerns about tariff costs.
• Diplomatic talks, the pending Supreme Court decision on emergency tariffs and November's US midterm elections remain key considerations.