South Korean Firms See $200 Billion U.S. Investment Opportunity, but Equipment Tariffs Could Undercut Contracts

South Korean companies may secure a larger share of U.S. investment projects, but the cost of bringing their equipment into the country could determine how much they actually gain. The first investment project and the timing of its initial funding are beginning to take shape, placing equipment tariffs at the center of industry concerns.

The South Korea-U.S. Strategic Investment Memorandum of Understanding gives South Korean suppliers priority when U.S. projects select vendors. It does not, however, explicitly provide tariff exemptions or reductions for equipment used in power plant and nuclear projects. Industry officials and trade specialists say tariffs could make otherwise successful contracts less profitable by raising supply prices.

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There appears to be some consensus in the United States that a degree of consideration should be given to foreign companies' workers and equipment used to revive American manufacturing or solve energy problems.

The Korea Economic Institute has warned that Korean intermediate and capital goods needed to build U.S. production facilities could face tariffs of 12.5% to 50% under Sections 301 and 232. The institute said high-value specialized equipment is often difficult to replace with U.S. suppliers during the early stages of construction. Tariffs on those goods could raise the cost of developing U.S. manufacturing capacity and undermine the investment goals of U.S. trade policy.

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If South Korea requests selective tariff exemptions or lower rates, I believe the United States may accept that to some extent.

Potential projects include a combined-cycle power plant and later nuclear construction. They would require large quantities of power equipment, piping, steel structures, control systems and industrial machinery. If tariffs of 12.5% to 50% applied to $100 million worth of equipment, the additional cost would range from $12.5 million to $50 million. The actual burden would depend on tariff classifications, origin rules and any exemptions.

Jang Sang-sik of the Korea International Trade Association said there appeared to be some support in the United States for accommodating foreign labor and equipment used to revive manufacturing or address energy problems. Another trade expert said Seoul should present tariff relief as a way to lower costs and supply-chain pressure for U.S. projects, rather than simply as a request to reduce costs for Korean companies.

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Equipment for investment in the United States is not a finished product replacing American goods, but an input needed to build production capacity in the United States.