Samsung, LG Eye U.S. Expansion as Mexico Production Moves

Samsung Electronics and LG Electronics, two of the world's leading home appliance manufacturers, are considering relocating some of their production from Mexico to the United States, according to a recent report. The move, if confirmed, could have significant implications for the global supply chain and trade dynamics, particularly in the context of ongoing geopolitical tensions and trade agreements.

The shift in manufacturing strategy comes as the U.S. government has imposed or threatened to impose tariffs on imported washing machines, which could increase production costs for Korean companies. In 2018, the U.S. government slapped a 20 percent tariff on the first 1.2 million washing machines imported from Korea and a 50 percent tariff on any additional units. Although the safeguard expired in February 2021, the new government is expected to take similar measures. This has led Korean home appliance companies to consider expanding their production in the United States to avoid these tariffs.

Market demand and presence are also driving the potential relocation. Both Samsung and LG have a strong presence in the U.S. market for home appliances. By producing these appliances locally, they can better respond to market demands and preferences, as well as reduce shipping costs and time. Additionally, the United States offers a more stable political and economic environment compared to Mexico, which can help Korean companies better plan and execute their production strategies.

The potential relocation could have significant impacts on employment and the economic landscape in both countries. In Mexico, the relocation could lead to job losses in the affected regions. For instance, Caterpillar announced last year that it would close its Newberry plant in South Carolina by late 2017, moving the work to Texas, Indiana, and Georgia under a cost-cutting plan. This closure resulted in job losses for the local workforce. Similarly, if Samsung proceeds with its plans, it could lead to job losses in Mexico, particularly in the Tijuana and Queretaro facilities that produce Smart TVs, LCD screens, refrigerators, and other high-end appliances.

On the other hand, the relocation could bring new job opportunities to the United States. Samsung's investment of about US$300 million in the former Caterpillar factory in Newberry, South Carolina, is expected to create around 500 jobs. This investment could stimulate economic growth in the region, as the new jobs would contribute to increased consumer spending and potentially attract other businesses to the area.

The shift in manufacturing could also have broader economic implications. The U.S. International Trade Commission (ITC) determined that two South Korean companies' washing machines manufactured in foreign countries were harming the U.S. industry. This decision could lead to increased protectionist policies, such as tariffs, which could encourage more companies to relocate their manufacturing plants to the United States. This trend could result in a net increase in U.S. jobs and economic growth, as more manufacturing activities are brought back to the country.

However, it is essential to consider the potential negative impacts on the U.S. economy as well. The increased construction costs and lingering subsidy uncertainties could make it more challenging for companies to invest in new facilities in the United States. This could lead to delays or cancellations of planned investments, resulting in fewer jobs and economic growth than initially expected.

In conclusion, the potential relocation of manufacturing plants from Mexico to the United States by Samsung Electronics and LG Electronics has the potential to significantly impact the global supply chain and trade dynamics, particularly in the context of ongoing geopolitical tensions and trade agreements. However, the specific implications will depend on various factors, including the reasons behind the shift, the response of other countries and industries, and the broader geopolitical and economic context.