‘Should we raise product prices or seek alternative production bases…’
In the first quarter, K-beauty and K-ramen, which recorded their highest export value ever, find themselves at a crossroads. This follows the U.S. government's official announcement on the 2nd (local time) that it will impose a 25% reciprocal tariff on all products imported from Korea.
According to the distribution industry on the 3rd, following the official announcement of the reciprocal tariff by U.S. President Donald Trump, the Korean cosmetics industry, which continues to tap the U.S. market, is contemplating whether to raise product prices in response to the increase in tariffs. Korean cosmetics are not included among major export items to the U.S. (such as semiconductors, automobiles, and steel), but they have rapidly grown to become the world's number one in cosmetics exports to the U.S. last year.
Raising prices is a valid decision if there is confidence that even with price increases, consumers will still choose the product. However, if the product has been competing solely on price, local alternative production in the U.S. needs to be considered, as consumer departure due to price increases could have significant repercussions.
Fortunately, Korean cosmetics original design manufacturers (ODM) already have production facilities in the U.S. Companies like COSMAX and Kolmar Korea, and Cosmecca Korea are representative examples. COSMAX's U.S. factory has received approval from the Food and Drug Administration (FDA) for cosmetics manufacturing facilities, and Kolmar Korea is also set to officially operate its second U.S. factory in the first half of this year.
An analyst in the distribution sector at a securities firm noted, “In terms of Korean beauty, it should be seen that alternatives are somewhat prepared.” He added, “If local production in the U.S. is desired, discussions can be had with companies such as COSMAX or Kolmar Korea. It is expected that COSMAX and Kolmar Korea will raise their factory utilization rates to the maximum due to the tariffs imposed by the Trump administration.”
Many expect that while some price increases may occur, the impact will not be significant. This means that there will likely not be major changes in the competitive environment as most countries exporting cosmetics to the U.S. will also be subject to tariffs. For example, if only Korea were subjected to a 25% tariff while Japan faced no additional tariffs, it would pose a significant problem; however, the Trump administration announced tariffs broadly.
A beauty industry insider stated, “The popularity of Korean cosmetics in the U.S. market has been due to unique competitive advantages such as textures and colors that have not been seen before,” adding that, “With the Hallyu wave, interest in the skin and makeup methods of Korean celebrities has surged, and because of that quality achievement, there is no need to take the pricing competitiveness issue too seriously.”
Food companies aiming to expand into overseas markets are also keeping a close watch on the situation. This year, domestic food companies have prioritized growth in overseas markets as a key agenda. With the imposition of tariffs, there is a possibility that growth in the U.S. market may fall short of its targets.
Reactions among corporations vary slightly. Those with production facilities in the U.S. are relatively relaxed. CJ CheilJedang and Pulmuone are representative examples. CJ CheilJedang currently operates 20 factories in the U.S. Additionally, it is constructing its 21st factory in Sioux Falls, South Dakota, set to be completed by 2027.
Pulmuone is expanding its tofu manufacturing line at a production facility in Ayer, Massachusetts. The plan is to finish construction in 9th to 10th months of this year and begin operations. Nongshim, which has already entered the U.S. market with its Shin Ramyeon, also has production factories in the U.S. A Nongshim representative stated, “We are producing local products at two factories in the U.S.” The annual production capacity of Nongshim's first and second factories in the U.S. is 500 million and 510 million units, respectively.
On the surface, the company likely to be most affected is Samyang Foods. Rapidly increasing its market share with ‘Buldak Bokkeum Myeon,’ Samyang Foods produces all its export volume to the U.S. domestically. Ottogi faces a similar situation. Ottogi is purchasing land in California and is pushing to establish a factory, but has not yet received local government permits.
An analyst responsible for food and distribution at a securities firm commented, “The tariff policies of the Trump administration may slow down Ottogi's overseas expansion speed.” Ottogi plans to aggressively target the U.S. market by changing its brand name from 'OTTOGI' to 'OTOKI' and employing BTS member Jin as its global model.
According to the Korea Trade Statistics Promotion Agency and the Ministry of Food and Drug Safety, the export value of domestic cosmetics was provisionally recorded at $2.599 billion (approximately 3.8 trillion won) in the first quarter this year. This represents a 13.6% increase compared to the same period last year, marking the highest performance ever for the first quarter. Of this, the export value to the U.S. was $440 million (approximately 6500 billion won).
In the first quarter, the export value of Korean ramen was provisionally recorded at $343 million (approximately 5000 billion won), marking a 27% increase compared to the same period last year. This also set a record for the highest export value ever for the first quarter.