SEOUL, August 9 (AJP) - With the recent tariff deal with the United States reducing the duty burden on South Korean exports to 15% from the initially envisioned 25%, President Lee Jae Myung celebrated the agreement as overcoming “a significant hurdle.” Various voices from the Bank of Korea to local analysts also praised the deal for reducing uncertainty.
Yet, we also await the possibility of expanded U.S. tariffs on specific items. In particular, we are watching closely to see what Washington’s policy will be towards semiconductor imports. While Seoul’s presidential office insists South Korea will be treated as a most-favored-nation (MFN) regarding semiconductor shipments, U.S. President Donald Trump just announced a tariff of around 100% on this valuable trade item. The sector’s value to South Korea is underscored by the fact that it makes up around 20% of the nation’s total export value. The importance of semiconductor chips is only going to grow from here because they are critical to the ongoing advancement of almost all modern technologies, from smartphones and IT products to cloud computing and AI.
Amid fierce competition with semiconductor suppliers in Taiwan and China, Korean firms will be hoping for any kind of edge they can find from the U.S. But they do not need to simply sit and wait passively while they await further announcements from Washington and the outcome of this month’s summit meeting between President Trump and his South Korean counterpart Lee Jae Myung. Instead, one of the most effective ways to be prepared for divergent trajectories is scenario analysis, in which we ask “what if?”
Don’t put all your chips in one place
By moving beyond linear forecasting, companies can use scenario analysis to strategically plan and explore what-if futures, rather than betting on a single forecast. It involves various steps, including identifying key variables, before constructing a scenario framework, and assessing implications and strategic options. While this analysis can be applied to various other sectors, we can present semiconductors as an important example.
Given the ongoing uncertainty driven by the U.S., two critical variables can help frame scenarios for Korean semiconductor companies: the severity and duration of U.S. tariffs, and the degree of flexibility within global semiconductor supply chains. These two variables can capture both external pressures and internal adaptability, helping Korean semiconductor firms shape plausible futures for strategic decision making.
The most optimistic scenario would be the “open pathway,” in which tariffs are rolled back through negotiations and the supply chain becomes more flexible and interconnected. This then allows extended partnerships and collaboration with vendors and customers across regions. In such a scenario, Korean semiconductor companies should reinforce their current strategic positioning by strengthening global partnerships, optimizing production and logistics, and scaling operations efficiently.
There is another scenario, the “false calm,” in which tariffs are still rolled back but the underlying supply chain is inflexible and highly concentrated in a few regions. Korean semiconductor players need to be wary of complacency despite short-term relief from tariffs, with topline growth supported by a temporary improvement in margins. Continued investment in much-needed areas such as supply chain resilience and risk management is essential to prepare for future uncertainties and potential disruptions.
A further “adaptive diversification” scenario can be defined as a situation where tariffs persist, but the degree of supply chain flexibility is high. In such a scenario, Korean firms can respond by shifting and adjusting their supply chains in order to reduce geographical risks. For instance, they may shift a part of their production to Southeast Asia, expand packaging or testing operations to countries such as Vietnam or India, and source critical materials from alternative suppliers outside high-risk regions like China.
The worst-case scenario is “geopolitical gridlock,” where tariffs widen and global trade becomes increasingly inflexible along geopolitical lines. This environment would require semiconductor companies to localize go-to-market strategies by adapting customer engagement to regional needs and regulations. Their activities and operations need to align with trade blocs and account for potential export controls and subsidies. Also, in this scenario, decentralization becomes a long-term strategy, calling for sustained investments in local manufacturing, packaging, and compliance.
Not a game of chance
Scenario analysis is not about making predictions, but “adaptive diversification” appears to be the most likely scenario for Korean semiconductor companies based on our observation of recent developments in the market and policy landscape.
“Adaptive diversification” gains traction as that recent 15% tariff agreement indicates that tariff measures are likely to remain in place, even among close allies. Following the promise of MFN treatment, Korean semiconductors may face a significantly smaller tariff than the 100% rate cited by President Trump, but we await confirmation. Meanwhile, with the ongoing development of Southeast Asian countries as emerging manufacturing hubs, along with U.S. efforts to reshore semiconductor production capacity back to its own territory for national security reasons, the global semiconductor supply chain is beginning to show signs of increasing flexibility.
While “adaptive diversification” seems most probable, we can also consider the possibility of the “false calm” scenario. Despite ongoing trade tensions, the U.S. remains heavily reliant on Korean semiconductors, particularly those supporting next-generation technologies such as AI and high-bandwidth memory. Even though South Korea’s overall exports to the U.S. fell in the first half of this year, its shipments of semiconductors to America grew at a double-digit rate.
Additionally, Washington has shown interest in Seoul’s proposal for manufacturing cooperation, still suggesting potential strategic and diplomatic measures for easing tariffs. In parallel, China continues to expand its role within the global semiconductor supply chain, and the concentration could remain in this region leaving the structural inflexibility largely intact. China is still negotiating a trade deal with the U.S., the outcome of which may have wider geopolitical implications.
Korean semiconductor firms must translate scenario insights into concrete actions to respond effectively to identified scenarios. This can be done by stress-testing current strategies under each scenario and identifying vulnerabilities, as well as “no-regrets” moves, such as supplier diversification, that deliver value across all possible futures. Scenario planning should be embedded into a company’s annual strategic planning process to ensure organizational resilience and long-term agility. While recognizing the erosion of long-stable assumptions about global trade, they can still take their own initiative to more effectively navigate these shifting geopolitical dynamics and trade disruptions.
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