U.S.-South Korea Trade & Immigration Tensions: Implications for Foreign Manufacturing Investment

The U.S.-South Korea relationship has long been a cornerstone of global automotive and electric vehicle (EV) innovation. However, 2025 has brought heightened tensions over trade policies and immigration enforcement, creating both risks and opportunities for multinational automakers and EV battery producers. As the U.S. and South Korea navigate a rapidly evolving landscape of tariffs, supply chain realignments, and labor compliance challenges, investors must weigh these dynamics to assess the long-term viability of manufacturing investments in the region.

Trade Policies and Supply Chain Shifts: A Double-Edged Sword

The U.S. Inflation Reduction Act (IRA) has reshaped the EV battery industry by incentivizing non-Chinese sourcing of critical materials. South Korean firms, long reliant on China for lithium hydroxide, have responded with strategic partnerships. For instance, SK On’s July 2025 agreement with Ecopro to secure 6,000 tonnes of lithium hydroxide—a move timed to meet IRA compliance deadlines—highlights the urgency of diversifying supply chains [1]. This shift aligns with South Korea’s broader $15.1 billion investment plan by 2030 to develop next-generation battery technologies, such as solid-state and sodium-ion, reducing dependency on Chinese-dominated supply chains [2].

Yet, U.S. tariffs on South Korean battery components, including a 15% levy on cathode materials, have raised costs for manufacturers. According to a report by Bloomberg, these tariffs have contributed to a decline in South Korean EV battery exports to the U.S., prompting firms like LG Chem and SK Innovation to shift production to the U.S. to qualify for IRA tax credits [3]. While this regionalization of supply chains mitigates geopolitical risks, it also demands significant capital expenditures, complicating cost structures for foreign automakers.

Immigration Tensions: A Looming Compliance Crisis

The September 2025 immigration raid at Hyundai’s Georgia EV battery plant—detaining 475 workers, including 300 South Koreans—has exposed vulnerabilities in labor compliance. This operation, described as the largest single-site enforcement action in U.S. history, disrupted construction at the $7.59 billion facility and triggered diplomatic fallout [4]. South Korean officials criticized the raid as a threat to bilateral economic ties, while U.S. authorities emphasized curbing unauthorized employment practices.

For foreign manufacturers, the incident underscores the risks of relying on temporary visa programs like ESTA for long-term labor needs. Hyundai and LG Energy Solution have since suspended business travel to the U.S., and the plant’s construction has been delayed. As noted by Reuters, such disruptions could deter future investments, particularly in industries where immigrant labor is critical [5].

South Korea’s domestic immigration policies further complicate labor availability. While the country expanded E-9 visas for manufacturing in 2024—allocating 95,000 positions to address shortages—strict compliance rules, including penalties of up to KRW 30 million for noncompliance, add operational costs [6]. Employers must navigate a complex regulatory environment, balancing labor needs with legal risks.

Balancing Risks and Opportunities

Despite these challenges, the U.S. market remains attractive for South Korean firms. The IRA’s $7,500 tax credits for EVs using domestically sourced batteries create a lucrative incentive, provided companies can navigate compliance hurdles. South Korea’s strategic investments in future battery technologies position it to lead in innovation, countering China’s dominance in raw material processing [2].

However, investors must factor in geopolitical volatility. The Georgia raid has heightened scrutiny of foreign labor practices, and U.S. immigration policies under the Trump administration—promising stricter enforcement and mass deportations—could further disrupt operations. Additionally, South Korean automakers like Hyundai face domestic competition from Chinese battery suppliers, such as CATL, which are gaining traction in the U.S. market [7].

Conclusion: Strategic Adaptation is Key

The U.S.-South Korea relationship in the EV sector is at a crossroads. While trade policies and immigration tensions pose significant risks, they also drive innovation and supply chain resilience. For multinational automakers and battery producers, success will depend on strategic adaptation: securing non-Chinese materials, navigating labor compliance, and leveraging IRA incentives. Investors must remain agile, balancing short-term disruptions with long-term opportunities in a market poised to shape the future of mobility.

Source:
[1] Ecopro-SK On Sign Major Lithium Hydroxide Supply Deal [https://discoveryalert.com.au/news/ecopro-sk-on-2025-lithium-agreement-supply-chain/]
[2] The geostrategic race for leadership in future electric vehicle battery technologies [https://pubs.rsc.org/en/content/articlehtml/2025/ee/d5ee00301f]
[3] US Migrant Raid Jolts South Korea, Stirs Investor Anxiety [https://www.bloomberg.com/news/articles/2025-09-07/us-migrant-raid-jolts-south-korea-stirs-investor-anxiety]
[4] Immigration Raid Exposes Tensions From Seoul to Washington to Rural Georgia [https://www.nytimes.com/2025/09/06/us/immigration-raid-georgia.html]
[5] The Pushback on Chinese Imports: Bigger than Tariffs [https://www.recallmasters.com/the-pushback-on-chinese-imports-bigger-than-tariffs/]
[6] Corporate Immigration Laws and Regulations Korea 2025 [https://iclg.com/practice-areas/corporate-immigration-laws-and-regulations/korea]
[7] Automotive Technology Insight | Industry News | Supply Chain [https://autotechinsight.spglobal.com/news?fs_tags[4][]=343]