Even before November 2016, companies were closely following Donald Trump’s campaign and the promises and threats he was making. What would it mean for global giants that rely on long, distributed supply chains, such as Samsung? After the surprise victory, the issue became much more concrete, pushing companies to act.
International trade is a huge part of American economy, with imports, accounting for 14.7% GDP in 2016, a total of 2.71 trillion dollars . Of particular relevance in Trump’s protectionist speech was the trade deficit of approximately 500 billion dollars, or 2.7% of GDP .
In recent times, we’ve been seeing indications that countries will adopt more protective measures. NAFTA, the trade agreement between US, Canada, and Mexico, was called by the president “the worst trade pact in history”, and he is threatening to either make changes to it or withdraw completely . Trump also picked a fight with global automotive companies when he threatened to tax all imports into the US with a 35% “big border tax” .
Samsung, despite being a Korean-based company, has a lot of exposure to the US market, which represents roughly one-third of their global sales . Their products, manufactured in several different countries, are mostly imported into the United States, placing the company in the top 10 overall importers in terms of volume . New taxes on imported products could hugely impact Samsung’s overall profitability, and even compromise the viability of their current business model in the United States.
To complicate matters further, Whirpool, an American manufacturer of household appliances, has filed complaints against Samsung and LG, arguing that the large number of items imported was hurting domestic manufacturers, and asking for “global safeguard” restrictions against their Korean competitors . In October of this year, the US International Trade Commission (ITC), voted 4-0 in favor of Whirpool, in what could be a major step towards imposing additional import taxes or quotas on foreign-made machines. President Donald Trump is expected to make a final decision on the issue early next year, after the commission recommends possible remedies by December.
Samsung is taking action to improve their prospects, despites the probable headwinds. Earlier this year, even before the ITC’s verdict, Samsung announced it would open a $380 million home appliances factory in Newberry County, South Carolina, expecting to create almost 1,000 jobs by 2020. It will be the first plant of this type opened in the US in more than three decades . The impact of this measure is twofold. First, it creates goodwill with the American government, and with Trump in particular. In effect, after Samsung’s announcement, Trump used his highly publicized twitter account to thank the company, saying: “Thank you, @samsung! We would love to have you!”. Second, by installing a manufacturing facility in the United States, Samsung, is effectively hedging against possible import restrictions in the future, at least for this specific product line. The company is also investing an additional $1.5 billion on their semiconductor factory in Texas, that already employs about 3,000 people .
Samsung is not fighting this alone. A group of companies from South Korea, represented by the Korea Chamber of Commerce and Industry, the country’s largest business association, proposed several investments in the US, such as an LG factory worth $250 million, and also announced a South Korean company would import American shale gas starting in 2019. The country is, after all, an important trade partner with the US, with total two-way trade totaling $145 billion, creating a trade deficit of $17 billion for the US .
In addition to these measures that Samsung is already undertaking, others are possible. They could, for example diversify their supply chain even further, installing plants of additional product lines in the US, or installing plants in other countries, to spread the risk of one single country being imposed trade barriers. Another idea would be to invest to strengthen their revenue streams from markets other than the US. This could limit their downside in case they are effectively imposed trade restrictions, and allow them to diversify risks in general.
Several questions about the protectionist measures remain. Is the average American really better off because of them? Job creation is certainly expect from these individual investments in the US, but what are the side effects of these measures? Some argue that the unexpected consequences can be far worse than the benefits created, including increases in prices for the consumer . (737 words)
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