U.S. Election Impact on Semiconductor Industry: Insights from Korea Institute for Industrial Economics & Trade

A representative was seen examining a wafer at a booth during the Semiconductor Exhibition (SEDEX) held at COEX in Gangnam District, Seoul, in October last year. Yonhap News

Analysts predict that regardless of the outcome of this year’s U.S. presidential election, the trend of domestic semiconductor production led by the U.S. will continue, which could intensify global competition. Especially as the U.S. is expected to maintain its policy on China, there have been suggestions that South Korea needs to develop new industrial and trade strategies.

The Korea Institute for Industrial Economics & Trade’s report on ‘The Impact on Korean Industry and Response Measures According to the Direction of the U.S. Election’ states, “This U.S. presidential election is a key variable determining the scope and depth of the restructuring of the international division of labor in the global manufacturing industry due to the U.S.-China strategic competition.”

The institute explained that in the case of semiconductors, if President Joe Biden is re-elected, “internalization of the manufacturing base and export control to China will have the effect of controlling China’s pursuit,” but explained, “However, competition with U.S. and Japanese companies is expected to intensify due to increased domestic production in the U.S.” If former President Donald Trump wins the election, there is a possibility that he will demand additional investment compared to the same level of support to incentives for the Semiconductor Support Act, adding, “High tariffs on China’s ICT manufacturing industry could cause a short-term shock to our semiconductor sales.”

To overcome this situation, the institute argued that we must “strengthen diplomatic support and prepare measures to buffer semiconductor shock centered on China” and “fully support expansion into the Indo-Pacific region.”

In the case of automobiles, if Biden is re-elected, it is expected that the increase in exports of domestic vehicles and electric vehicles to the U.S. can be maintained. Still, if Trump wins, he is predicted to strengthen tariffs and non-tariff barriers. The institute advised that export markets such as the Indo-Pacific and the Middle East should be diversified in advance. For secondary batteries, if Biden is re-elected, the instability of the supply chain may increase due to the intensification of the U.S.-China strategic competition. If Trump takes position, the reduction in the scale of IRA support may inevitably lead to a contraction in investment in the U.S.

In the case of steel, Biden could speed up the introduction of the Carbon Border Adjustment Mechanism (CBAM), while Trump is likely to raise tariffs and reduce quotas based on the Trade Expansion Act (Section 232). The Korea Institute for Industrial Economics and Trade emphasized, “We need to expand support for countermeasures such as high-rate tariff avoidance efforts on domestic cars and regulations on the origin of parts of local manufacturing facilities,” and “When the U.S. reduces IRA, we need to strengthen manpower and tax support to promote domestic investment.” The institute added, “As we enter the restructuring phase of the international division of labor structure of major industries according to strategic logic from the globalization phase of the supply chain centered on China according to economic logic, we need to establish new strategies to secure competitive advantages by industry and region.”