Trump Threat to Biden’s Industrial Policy Hangs Over Asian Firms

Donald Trump says “tariff” is his favorite word, campaigning on a bet that steep import levies will force manufacturers to move factories to the US. 

That leaves some of the giant Asian firms that have already announced US investments sweating on whether Trump will return to the White House and rip up the Biden administration’s tax breaks and subsidies that helped lure them. The former President has criticized the Inflation Reduction Act as a “scam” and the CHIPS and Science Act as a bad deal.

Companies such as Toyota Motor Corp., Hyundai Motor Co., Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. have been adding to their footprint in America to take advantage of the strong economy and cash in on Biden’s industrial incentives.

More than $110 billion in new greenfield investments into the US has been announced in each year since 2021, according to data from the United Nations Conference on Trade and Development. The developed economies of East Asia have led the charge, with a combined $147 billion from Japan, South Korea and Taiwan over those three years.

Now, uncertainty surrounding the election is hanging over those plans. 

“Trump is a master of unpredictability” and abrupt actions are likely if he takes office, said Bill Reinsch, who served as a top Department of Commerce official in the Clinton administration and is now a senior adviser at the Center for Strategic and International Studies, a Washington-based think tank. “Regulatory rollback is always a possibility, although I think he would apply it selectively, probably focusing on the renewable energy tax credits. He can’t get rid of the credits on his own, but he can change the regulations and make them more difficult to obtain.”

The Biden administration’s Inflation Reduction Act offers tax credits and other incentives for the production of electric vehicles, renewable energy, sustainable aviation fuel and hydrogen. Trump described the policy as the “Green New Scam” in his recent interview with Bloomberg Editor-in-Chief John Micklethwait at the Economic Club of Chicago. 

Meantime, the CHIPS and Science Act of 2022 offers incentives to bring more advanced semiconductor manufacturing to US shores. In his recent interview with Joe Rogan, Trump said the “chip deal is so bad” and Taiwan “stole our chip business,” arguing that applying hefty tariffs would be a better way of forcing companies to set up factories in the US.

“You put a big tariff on the chips coming in,” Trump told Rogan. “I say, ‘You don’t have to pay the tariff. All you have to do is build your plant in the United States.’ We didn’t have to give them the money to build a plant.”

South Korean companies have invested heavily into the battery industry in the US, with firms such as LG Energy Solution Ltd. and SK On Co. building plants in Arizona, Georgia and Michigan. However, the demand for electric vehicles hasn’t been as strong as expected and if a new Trump administration slashes subsidies from the IRA, that could damage their finances and undermine the investment rationale. 

LG Energy has said it sees risks to its plans in the US from weaker-than-expected sales of electric vehicles and the possibility that Trump will scrap the current administration’s EV policies. In July, it slashed its annual sales target after second-quarter earnings missed analyst estimates and mentioned rising political uncertainty ahead of the presidential election. 

Multiple EV-related provisions could be key targets for repeal if Trump wins, especially if Republicans take both houses of Congress, BNEF analyst Corey Cantor wrote in a report this week. He notes that fuel economy and emissions targets are “almost certain to undergo rewrites,” and the up to $7,500 tax credit for buying or leasing an EV could also be revoked.

South Korea’s Finance Minister said last week that he expected strong ties with the US and investment to continue no matter who wins on Nov. 5. Companies, by contrast, expect greater trade barriers and geopolitical tensions, with about two-thirds of manufacturers surveyed by the Korea Chamber of Commerce and Industry saying they expect trade protectionism to intensify next year.

Under the Biden administration, the US regained its position as the most important destination for direct Japanese and Taiwanese exports and it’s now neck-and-neck with China as a market for South Korean companies. Strong US demand has coincided with tepid growth in China, contributing to the shifting trade patterns. 

There’s been an accompanying move away from investing in China. Compared to the $428 billion in inflows into greenfield investments in the US over the 2021-2023 period, foreign firms have committed less than $100 billion to China, according to the data released by the UN. 

Until there’s clarity on what America’s industrial and trade policy is going to look like, firms may hold off on delivering on their investment plans or making new ones.

Scrapping the IRA’s subsidies “may cause specific foreign companies to reconsider their investments,” said David Boling, director for Japan and Asian trade at the Eurasia Group. “Any big change to the IRA could curb the appetite for future foreign investments by specific firms. It is harder to see it completely upending current foreign investments, however. More likely is that those investments in the US get rebalanced in some way.”

With assistance from Heejin Kim.

This article was generated from an automated news agency feed without modifications to text.