South Korean companies are investing billions of dollars in the United States to take advantage of two major pieces of legislation aimed at boosting American manufacturing.
South Korean companies are set to invest $21.5 billion in U.S. projects in 2023, more than any other country, according to a Financial Times analysis of U.N. data. South Korea overtook Taiwan, which held the top spot in 2022.
Samsung, LG, Hyundai and other South Korean companies are spending billions of dollars to build facilities in the U.S. to make electric vehicles, batteries and semiconductor chips, with much of the money flowing to Southern states, boosting jobs in the so-called Battery Belt.
Yeo Hang-gu, a former South Korean minister of trade and industry and a senior fellow at the Peterson Institute for International Economics, told Business Insider that US and South Korean interests in emerging technologies are perfectly aligned.
Amid growing geopolitical uncertainty, the Biden administration is looking to wean U.S. supply chains away from China to compete in the electric vehicle and semiconductor races, while South Korea, a longtime U.S. ally, wants to boost its global presence in high tech and auto manufacturing.
Yeoh noted in particular that the Controlling Inflation Act of 2022 and the CHIPS and Science Act provide financial incentives for companies to invest in green technology in the United States, strengthening South Korea’s efforts.
“These new geopolitical factors, as well as huge subsidies and tax incentives from the IRA and the CHIPS/Science and Technology Act, are major incentives for Korean companies to invest in the U.S.,” Yeo said.
Korean companies creating green tech jobs in the U.S.
According to a Financial Times analysis, more than half of South Korea’s outbound investment will be to the United States in 2023, up from 18% in 2019. Over the same period, South Korean investment in China fell from 11% to 1%.
More than a third of South Korean projects announced in the U.S. in 2023 will be in the auto or electronics sectors, according to the analysis, including a Kia plant in Georgia that plans to take advantage of the Inflation Reduction Act’s $7,500 tax credit for buyers of U.S.-made EVs.
Similarly, Hyundai announced in February that it would invest more than $7 billion in its manufacturing facilities in Georgia, an investment the company estimates will create about 40,000 jobs in the state.
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South Korea’s investments are mostly in southern states: Samsung is investing $17 billion in a semiconductor factory in Texas, which is expected to create thousands of jobs, and LG recently invested $5.5 billion to build a battery factory in Arizona.
Additionally, SK Hynix announced it would build a $3.87 billion factory in Indiana to produce chips for artificial intelligence products, which is expected to create about 1,000 jobs by 2030.
Yeoh said South Korea is interested in being competitive in emerging technologies and the United States needs an ally to bolster its manufacturing industry.
“Resurrecting American manufacturing will be one of the most important economic policy objectives, but the United States cannot do it alone,” Yeo said. “The United States needs some partners in rebuilding manufacturing, especially in emerging industries and supply chains.”
Over the past decade, Korean companies have created about 7,000 jobs in Texas and about 8,000 jobs in Indiana.
As the U.S. reinvigorates manufacturing, President Joe Biden’s Fight Inflation Act includes provisions to bar companies with supply chains linked to “foreign entities of concern” like China to ensure competition, Yeo said.
“Receiving U.S. subsidies limits the flexibility to invest in China,” Yeo said.
These regulations have prompted South Korean companies to shift their focus away from China and towards the United States.
South Korea’s Ministry of Trade, Industry and Energy announced in May that it would spend $7 billion to move its supply chain out of China to better comply with U.S. regulations, according to The Wall Street Journal.
Moreover, as high-tech products like EV batteries become a major focus of U.S. manufacturing, it makes business sense for Korean companies to invest directly in factories in the U.S., Yeo said.
“For example, these batteries are a very bulky product,” Yeo said, adding that they are cumbersome to transport. “So, for the battery industry, I think it makes commercial sense to set up factories closer to the end market and the end user,” he said.
Korean companies like LG and Samsung are looking to globalize, and the U.S. is often a target location for big companies, Yeo said.
According to World Bank data, the United States has a population of over 330 million, while South Korea’s is just over 50 million.
“The U.S. is currently the largest market and is still considered to be very sophisticated,” Yeo said. “When these global companies roll out new products and technologies, they need to test them in the U.S. market.”
To be sure, it’s important to recognize that trade is complicated, Yeo said. China has been, and continues to be, one of South Korea’s largest trading partners. This period brings business opportunities for South Korean companies in the U.S., but geopolitical tensions between China and the U.S. create uncertainty.
“Due to the geopolitical tensions between the U.S. and China, many Korean companies that have invested in China and have large operations there are really caught in a bind between the U.S. and China,” he said.
South Korean companies are currently focused on the United States, but political uncertainty surrounding the presidential election is prompting caution in international business, Yeo said.
“Korean companies currently enjoy first-mover advantage, but they also face potential risks depending on the outcome of the U.S. elections in November,” Yeo said.
Still, Yeo said such investments wouldn’t make business sense without the subsidies and incentives offered by the Biden administration’s focus on manufacturing.
“The combination of all these factors that we’re seeing right now is causing Korean investment to flood into the U.S. market,” he said.
Interested in a job in EV or AI chip manufacturing? Contact us at jtowfighi@businessinsider.com.
