U.S. President Donald Trump announced on the 23rd (local time) a plan to impose a minimum 25% tariff on 'smartphones produced overseas,' causing alarm in the smartphone industry. Samsung Electronics' response plan to compete with Apple in the U.S. smartphone market is divided into two main strategies: either bear the tariff burden or build a smartphone manufacturing plant in the U.S.
According to the industry on the 27th, Samsung Electronics has been preoccupied with profit and loss calculations regarding its response to the U.S. market since last month, when the Trump administration announced high reciprocal tariffs on major smartphone production bases like Vietnam and Korea. An industry insider familiar with the internal affairs of Samsung Electronics noted, “I understand that they are reviewing various response options, from newly establishing a smartphone factory in the U.S. to transferring export volumes to countries with lower tariffs while closely monitoring the international situation.”
President Trump mentioned on his social media that he had long told Apple CEO Tim Cook that he hoped the iPhone sold in the U.S. would be 'manufactured in the U.S., not in India or another country.' He added, 'If Apple fails to comply, it will have to pay at least a 25% tariff.' He emphasized that this tariff policy would also apply to 'Samsung or other corporations that manufacture products (overseas).'
Some analysts say that no matter what response option Samsung Electronics chooses, such as 'bearing the tariff burden' or 'establishing a local factory,' the impact is unavoidable, resulting in a 'dilemma.' A smartphone industry insider analyzed, 'Samsung Electronics will only move once Apple reveals its response to the tariff policy.'
◇ Selling 30 million smartphones in the U.S.… Loss of around 4 trillion won if tariffs are absorbed
According to the Financial Supervisory Service's electronic disclosure system, Samsung Electronics generated sales of 114.4249 trillion won from its smartphone business last year. It is estimated that approximately 25 trillion won, or 17% of that, came from the U.S. market.
According to an analysis in February by market research firm Tech Insight, Samsung Electronics held an 18.3% (by quantity) share of the global smartphone market, which amounted to 1.22 billion units last year. This means that about 223 million smartphones were sold in the global market last year, with approximately 30 million units sold in the U.S. market.
If Trump's tariffs come into effect, not only finished goods like smartphones but also components such as batteries, camera modules, and semiconductor substrates will be affected, leading the industry to believe that a price increase of about 40-50% on smartphones is inevitable. If Samsung Electronics does not pass this cost on to consumers, it is projected to incur annual losses amounting to trillions of won.
Kim Dong-won, a researcher at KB Securities, noted, 'If Samsung Electronics absorbs the tariff without transferring its smartphone production base to Vietnam, 4 trillion won, which is a third of the smartphone operating profit, will be exposed to tariff impacts.' However, he added, 'There is potential for tariff negotiations between the U.S. and Vietnam governments, so the intensity of tariff impact on Samsung Electronics might not be as significant as feared.'
◇ 'Establishing a local factory could be a solution'
According to sources in the smartphone manufacturing industry, if Samsung Electronics builds a smartphone assembly plant in the U.S., the expense is estimated to be around 3 trillion won. It is suggested that considering the business expenses of recently constructed smartphone assembly plants abroad, along with local material costs and labor expenses in the U.S., it could be feasible with $2 billion.
A source in the smartphone manufacturing industry stated, 'From a long-term perspective, it would be better for Samsung Electronics to build a domestic smartphone factory in the U.S. than to bear the tariff burden,' adding, 'While there are various variables like the level of automation equipment, land prices, and state government support, this could be a viable response method in terms of reducing uncertainty.' They also mentioned, 'Although U.S. labor costs are high, establishing a local factory could significantly reduce distribution costs, which might offset some expenses.' Another electronics industry insider commented, 'Compared to appliances and semiconductors, the production facilities for smartphones are smaller, leading to relatively lower setup costs.'
◇ No cost advantage in transferring factories to the U.S.
However, there are analyses suggesting that establishing a production line in the U.S. may not be an easy task. Dan Ives, an analyst at Wedbush Securities, stated in a recent interview with CNN, 'Even if Apple transfers only 10% of its entire smartphone supply chain to the U.S., it would cost about $30 billion and take three years.'
Manufacturing a smartphone requires various components such as batteries, memory, and processors, which are produced around the world; thus, tariffs apply when bringing them into the U.S. Ultimately, if a 'manufacturing ecosystem' is not established, cost increases due to tariffs are unavoidable. According to a report from Bank of America, even if iPhones are assembled in the U.S., a significant portion of the components is produced in China, resulting in an increase in production costs of over 90%.
Neil Shah, vice president of Counterpoint Research, remarked, 'Without significant subsidies and cheap, skilled labor, transferring smartphone production capabilities to the U.S. will absolutely not happen,' adding, 'Manufacturing in the U.S. offers no cost advantages whatsoever.'
An insider in the smartphone industry predicted, 'Samsung Electronics will ultimately compensate for losses from Trump's tariffs by raising consumer prices,' suggesting that 'Apple, its competitor, has no clear alternative other than raising prices, meaning that even if Samsung Electronics raises smartphone prices, there will likely be no significant drop in market share in the U.S.'
Some analysts have also suggested that Samsung Electronics may seek to reorganize its global production base in response to the increase in U.S. smartphone tariffs. Samsung Electronics has smartphone production bases not only in Korea and Vietnam but also in eight locations worldwide, including Brazil and India. A Samsung Electronics official stated, 'At this stage, there is no separate position regarding the U.S. tariff response.'