The U.S.-South Korea Supply Chain Shock: Implications for EV Manufacturing and Cross-Border Investment Risk

The global electric vehicle (EV) industry is undergoing a seismic shift driven by geopolitical tensions, regulatory reconfigurations, and the urgent need for supply chain resilience. For South Korean manufacturers operating in the U.S., the interplay of these forces—particularly under the Inflation Reduction Act (IRA) and the looming specter of a second Trump administration—poses both opportunities and existential risks. This analysis examines the long-term implications of these dynamics for cross-border investments and the strategic adaptations required to navigate an increasingly fragmented global landscape.

Geopolitical and Regulatory Risks: A Perfect Storm

The U.S.-South Korea EV supply chain has become a battleground for broader geopolitical and economic realignments. The Ecopro-SK On lithium hydroxide supply agreement, finalized in July 2025, exemplifies this tension. By securing 6,000 tonnes of lithium hydroxide for U.S. production, SK On aims to comply with IRA requirements that exclude materials sourced from “foreign entities of concern”—a category dominated by China, which controls 80% of global lithium hydroxide production [1]. This deal not only secures U.S. tax credits but also strategically positions South Korean firms to weather anticipated policy shifts under the Trump administration, which has signaled a potential phase-out of EV incentives by September 2025 [1].

However, regulatory uncertainty remains a critical vulnerability. The Trump administration’s proposed tariffs on Chinese battery materials—such as cathodes, which constitute 40% of an EV’s cost—threaten to disrupt supply chains reliant on cross-border sourcing [2]. While batteries are currently tariff-exempt, the administration’s broader protectionist agenda, including a 25% tariff on Canadian imports and a 100% tariff on Chinese EVs, has created a volatile environment [4]. South Korean firms, which have historically balanced production between China and the U.S., now face a zero-sum dilemma: overexposure to Chinese materials risks IRA ineligibility, while full U.S. localization could inflate costs and reduce flexibility.

Strategic Adaptations: Diversification and Innovation

To mitigate these risks, South Korean manufacturers have pursued aggressive supply chain diversification. Over $55 billion in U.S. investments since 2022—led by firms like Samsung SDI and LG Energy Solution—reflects a strategic pivot toward domestic battery production [2]. These investments are not merely compliance-driven; they are part of a broader effort to secure partnerships with U.S. automakers like General Motors and Ford, which require localized battery production to qualify for IRA subsidies [3].

Yet, diversification alone is insufficient. South Korea’s government has also prioritized technological autonomy, committing 150 billion won ($15.1 billion) by 2030 to develop next-generation battery technologies, including non-lithium alternatives [2]. This move is critical, as the global battery patent landscape is dominated by China, Japan, and South Korea, which collectively hold 85% of relevant patents [2]. By focusing on innovation, South Korean firms aim to reduce dependency on traditional lithium-ion supply chains and hedge against geopolitical disruptions.

Long-Term Implications: Navigating Policy Volatility

The IRA’s future under a Trump administration introduces another layer of complexity. While the current administration’s $7,500 EV purchase subsidy has bolstered South Korean market share, Trump’s campaign pledge to abolish the IRA could unravel these gains [3]. This policy uncertainty forces manufacturers to adopt a dual strategy: leveraging short-term IRA benefits while preparing for a potential regulatory reset. For instance, SK On’s timing of its lithium hydroxide agreement—just months before the anticipated IRA phase-out—demonstrates a race against policy shifts [1].

Moreover, the broader geopolitical decoupling between the U.S. and China necessitates a reevaluation of cross-border investment structures. South Korean firms are increasingly adopting “regionalized” supply chains, aligning with U.S. and Japanese partners to reduce exposure to Chinese export controls and trade disputes [2]. Participation in frameworks like the Indo-Pacific Economic Framework further underscores this shift, as Seoul seeks to balance economic ties with China while aligning with U.S. strategic interests [4].

Conclusion: A Call for Agility and Foresight

The U.S.-South Korea EV supply chain is a microcosm of the broader challenges facing global manufacturing in an era of geopolitical fragmentation. For South Korean firms, success hinges on their ability to balance regulatory compliance, technological innovation, and strategic foresight. While the Ecopro-SK On deal and U.S. investment surges offer short-term advantages, long-term resilience will require continuous adaptation to policy volatility and a willingness to redefine traditional supply chain paradigms. Investors must remain vigilant, recognizing that the current landscape is as much about political risk as it is about market opportunity.

**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] Economic Issues for Korea in the Next US Administration, [https://keia.org/the-peninsula/economic-issues-for-korea-in-the-next-us-administration/][3] South Korean EV manufacturers gain traction as Chinese ... [https://eastasiaforum.org/2025/04/02/south-korean-ev-manufacturers-gain-traction-as-chinese-rivals-face-tariffs/][4] Will Trump Make the Auto Industry Great Again? [https://www.coxautoinc.com/news/will-trump-make-the-auto-industry-great-again/]