How Trump's tariffs put Samsung's future at risk
What's the story
Samsung's massive investments in Vietnam are now at risk, thanks to possible US tariffs.
The company's large phone production facilities in the Southeast Asian nation could lose their manufacturing hub status.
In a bid to mitigate these risks, Samsung is looking at alternative production locations like India and South Korea.
This also begs the question: Is Vietnam's export model and appeal for foreign investment sustainable?
Long-term investment
Samsung's commitment to Vietnam's growth
During a meeting with Vietnam's Prime Minister Pham Minh Chinh in July, Samsung Electronics Chairman Jay Y. Lee reiterated his commitment to the country's growth.
"Vietnam's success is Samsung's success, and Vietnam's development is Samsung's development," Lee said.
He pledged long-term investment to make Vietnam the company's largest manufacturing base for display products.
Since entering the country in 1989, Samsung has invested billions of dollars to expand its global manufacturing footprint beyond China.
Tariff concerns
Reliance on Vietnam and potential tariff implications
Samsung is Vietnam's largest foreign investor and exporter, with nearly 60% of its global phone sales produced in the country.
However, this dependence could be risky as Hanoi negotiates with the Trump administration to cut a potential 46% tariff.
The high tariff has revealed weaknesses in Vietnam's export model. Recently, both Samsung and Vietnam got a temporary reprieve when Trump suspended the rate at 10% for 90 days.
Production changes
Possible adjustments amid tariff uncertainty
Despite the temporary relief, Reuters interviews with over a dozen people, including those at Samsung and its suppliers, indicate that the company would be hit hard if higher US tariffs are imposed in July.
Given this uncertainty, Samsung and its suppliers are considering production changes.
This could include increasing output in India or South Korea, but such measures would be expensive and time-consuming to execute.
Manufacturing impact
Tariff fears cloud manufacturing landscape in Vietnam
The fear of tariffs comes as the latest challenge to Vietnam's manufacturing sector, which had emerged as a favored destination for companies looking to diversify amid China-US tensions.
However, the boom has resulted in supply issues and raised the effective tax rate on large multinationals to OECD-led global standards.
This has triggered complaints from some companies over inadequate compensation for lost tax incentives.
Trade negotiations
Trade deal with US
Ko Tae-yeon, Chairman of the Korea Chamber of Business in Vietnam, said there was initial "panic" about Trump's tariffs.
Some companies had planned to reduce staff at local factories, but are now in a "wait and see mode" following Trump's pause.
Samsung hasn't decided how to respond to the Vietnam tariffs given Trump's fluctuating approach.
One option could be producing some US-bound smartphone models at its factory in Gumi, South Korea.
Trade balance
Electronics products account for 45% of Vietnam's exports to US
According to BMI Research, electronics products constitute about 45% of Vietnam's exports to the US. Major manufacturers such as Samsung are likely to cut production in anticipation of a drop in demand.
Samsung also produces TVs, home appliances, and device screens in Vietnam. Its exports totaled about $54 billion last year, contributing to about 15% of Vietnam's overall exports according to government estimates.