Seoul: US Commerce Secretary Howard Lutnick has issued a stark warning to South Korean memory chipmakers Samsung Electronics and SK hynix, suggesting that they could face tariffs of up to 100 percent if they do not expand their investments in the United States.

According to Yonhap News Agency, this warning comes on the heels of a recent agreement between the United States and Taiwan over semiconductor tariffs. In the deal, Taiwanese firms have pledged at least $250 billion in new investments to expand production in the US, and in return, they have been granted tariff-free import quotas. This agreement appears to set a precedent that could impact South Korea's two major chipmakers.

Last year, South Korea secured a trade deal with the United States aimed at reducing tariffs in exchange for substantial investments in strategic US sectors. However, the issue of US tariffs on Korean semiconductors was deferred for future negotiations. The US has assured that these tariffs would be "no less favorable" than those offered to other major semiconductor trading partners, such as Taiwan.

The US-Taiwan agreement allows Taiwanese companies to import significantly increased production capacity duty-free, provided they increase their US investments. South Korea, in its agreement with the US, has committed to $350 billion in investments, including $150 billion for shipbuilding and $200 billion for other strategic projects yet to be defined. The existing commitments already place a significant financial burden on South Korean firms, which are also investing heavily in domestic semiconductor production facilities.

The financial implications of these investments have contributed to the depreciation of the Korean won against the US dollar, with further volatility expected. South Korea's Cheong Wa Dae has indicated that it will engage in discussions with Washington to ensure that any future tariff agreements adhere to the principle of "no less favorable" terms.

Despite Samsung and SK hynix having already pledged substantial US investments, the potential for further demands from the US could strain South Korea's semiconductor industry. The prospect of being subjected to less favorable terms than Taiwan poses a significant risk to the industry's competitiveness.

While investment in the US is important, South Korea faces the pressing need to bolster its domestic semiconductor production capabilities. The country excels in memory chip production but remains dependent on foreign sources for other critical aspects of the semiconductor ecosystem. There is an urgent need to develop this ecosystem further and address regulatory challenges, such as the 52-hour workweek, to enhance the sector's growth.

The US warning may foreshadow a new phase of tariff negotiations, reminiscent of past trade tensions. As Washington prepares to engage in ongoing discussions, Seoul must be ready for repeated negotiations to safeguard its semiconductor industry's interests.