Chips, Cars, and Shipyards: Navigating the US-South Korea Trade Relationship for Investors

Introduction

South Korea sits at an unusually consequential intersection of US economic and strategic interests. It is the second-largest semiconductor exporter in the world after Taiwan, home to Samsung and SK Hynix. It is a top-tier automotive and battery manufacturer, with Hyundai, Kia, LG Energy Solution, Samsung SDI, and SK Innovation all playing central roles in the global EV supply chain. And it is now, following a landmark 2025 trade agreement, at the heart of a US plan to rebuild domestic shipbuilding capacity through Korean investment and expertise.

Bilateral trade reached approximately $241 billion in goods and services in 2025, and H1 2026 data suggests the pace is accelerating sharply. Korean exports to the US hit a record $20 billion in June 2026 alone, up roughly 78% year-on-year, driven primarily by AI-related semiconductor demand. The relationship was significantly reshaped in November 2025 when the two countries unveiled a Strategic Trade and Investment Agreement that ties Korean investment commitments of $350 billion to US tariff reductions and a reframed defence partnership.

For investors, the US-South Korea corridor is one of the richest multi-sector stories in global trade. It cuts across semiconductors, electric vehicles, batteries, shipbuilding, defence, nuclear energy, and critical minerals, all in a context of significant geopolitical competition with China.

This article, the latest in our trade relations series, follows on from previous pieces on Australia-China, Canada-China, US-Vietnam, US-Brazil, and US-India.

This article is for informational purposes only and does not constitute financial advice.

The 2025 Strategic Trade and Investment Agreement

The most important recent development in US-South Korea relations was the Strategic Trade and Investment Agreement signed in November 2025 following a summit between President Donald Trump and South Korean President Lee Jae Myung. The agreement explicitly links economic flows to defence cooperation and represents one of the most ambitious bilateral trade packages in years.

Under the agreement, South Korea committed to:

• $150 billion in investment to modernise US shipyards (branded as “MASGA”, Make American Shipbuilding Great Again)
• $100 billion in US energy purchases, primarily LNG and crude petroleum
• $200 billion in US investments across semiconductors, nuclear energy, batteries, biotechnology, and critical minerals

In return, the United States:

• Reduced Section 232 tariffs on Korean automobiles, auto parts, timber, lumber, and wood derivatives from 25% to 15%
• Committed to extending favourable semiconductor tariff treatment to Korea on at least as generous terms as any future deal with another chip-producing country
• Approved South Korea’s plan to build nuclear-powered attack submarines and committed to cooperate on enriched uranium and fuel reprocessing

The scale and scope of the agreement are unusual. Most bilateral trade deals focus on tariff reductions and market access. This one explicitly combines commercial investment, energy procurement, defence industrial cooperation, and nuclear technology sharing in a single framework.

Trade Volume and the Balance of Power

The US-South Korea economic relationship is one of the largest in Asia. In 2025, total bilateral trade in goods and services reached $241.2 billion, with:

• US exports to South Korea: $97.9 billion
• US imports from South Korea: $143.4 billion
• US trade deficit with South Korea: approximately $45 billion

2026 data points to significant acceleration. US exports to South Korea in June 2026 were up 26% year-on-year, driven by increased energy purchases under the new agreement and strong demand for semiconductor manufacturing equipment. Korean exports to the US in the same month hit a record $20 billion, up 78.6% year-on-year. If the H1 2026 pace holds through the year, total bilateral trade could approach or exceed $300 billion for the first time, cementing South Korea as one of the top-five US trading partners.

The composition of trade is relatively balanced across sophisticated manufacturing categories. South Korea exports high-value electronics, semiconductors, automobiles, batteries, machinery, and chemicals to the US. The US exports crude oil, petroleum gas, semiconductor manufacturing equipment, aircraft, and agricultural products to South Korea.

Key Sectors at a Glance

The following table summarises the major categories of South Korean exports to the US, based on H1 2026 data (full-year 2026 data isn’t yet complete). The pattern has shifted significantly from 2025 as AI-driven semiconductor demand accelerated through the year.

Source: US Census Bureau and Korea International Trade Association, H1 2026 data (figures approximate; YTD trends suggest semiconductor share continues to grow).

Semiconductor exports to the US surged in H1 2026, driven by the AI server investment boom. In June 2026 alone, Korean exports to the US hit a record $20 billion, up roughly 78% year-on-year, with semiconductors, computers, and electrical machinery leading the growth. The share of semiconductors within overall Korean exports to the US has grown meaningfully compared to 2025, when the sector represented closer to 22%.

Semiconductors: The Memory Chip Powerhouse

South Korea’s position in global semiconductors is extraordinary. Samsung is the world’s largest manufacturer of DRAM and NAND flash memory. SK Hynix is the second-largest DRAM producer and the dominant supplier of high-bandwidth memory (HBM) used in AI accelerators. Together, the two companies control the majority of global memory chip supply.

The US semiconductor relationship with Korea has three dimensions. First, Korean memory chips are essential inputs for US-designed AI accelerators from Nvidia, AMD, and others. Nvidia’s GPUs depend heavily on SK Hynix’s HBM, and supply constraints at SK Hynix have become a key bottleneck for AI infrastructure expansion. Through 2026, this dependency has only deepened as hyperscaler AI investment accelerated.

Second, Samsung and SK Hynix are investing heavily in US manufacturing. Samsung’s Taylor, Texas facility is now in production for both memory and advanced logic chips. SK Hynix’s Indiana HBM facility, announced in 2024, has moved into construction. Both companies have been major beneficiaries of CHIPS Act incentives, even as those programmes have faced political turbulence.

Third, the November 2025 agreement extends favourable tariff treatment to Korean semiconductors on terms at least as generous as any future chip deal with another country. This gives Samsung and SK Hynix meaningful protection against the broader semiconductor trade tensions we covered in the April tariff shock article.

Automobiles and EVs: Hyundai’s Breakthrough

South Korea’s automotive sector has made a remarkable transformation. Hyundai Motor Group, which includes Hyundai, Kia, and Genesis, is now one of the largest automakers in the US market and a leader in electric vehicles. The company has invested over $12 billion in US EV and battery manufacturing, including the Metaplant America facility in Georgia, which ramped to full production through 2026.

The reduction of US auto tariffs from 25% to 15% under the November 2025 agreement has been a significant win for Hyundai Motor Group and Kia. It has restored much of the competitive position they held before the broader Trump-era tariff escalation and provides pricing flexibility that competitors from Japan and Germany do not currently enjoy. The impact has shown up in H1 2026 sales data, with both brands continuing to gain US market share.

Kia’s growth in the US has been particularly strong, with the brand consistently gaining market share through 2026. Both Hyundai and Kia have been among the fastest-growing EV sellers in the US market, benefiting from both their vertical integration with Korean battery suppliers and their rapidly expanding US manufacturing capacity.

For investors, Hyundai Motor Group represents a different kind of EV story than Tesla or the US legacy automakers. It combines competitive EV products, strong traditional vehicle sales, Korean cost discipline, and now favourable tariff treatment.

Batteries: The Power Behind the EV Transition

South Korea is one of the global leaders in EV battery manufacturing, with LG Energy Solution, Samsung SDI, and SK On (SK Innovation’s battery subsidiary) all operating at significant scale. Together, the three companies account for a meaningful share of global EV battery production, second only to the Chinese battery giants CATL and BYD.

Korean battery makers have been investing aggressively in US manufacturing. Battery gigafactories have been built or are under construction in Georgia, Tennessee, Michigan, Kentucky, and Ohio, often in partnership with US automakers including GM, Ford, and Stellantis, plus Japan’s Honda. These facilities give the Korean battery giants direct access to the US EV market while supporting their American partners’ compliance with EV subsidy sourcing requirements. Through 2026, several of these facilities moved into mass production, significantly increasing the share of US-made batteries in Korean portfolios.

The $200 billion investment commitment in the November 2025 agreement includes significant allocations for additional battery capacity and critical minerals processing. This positions Korean battery makers to continue expanding their US footprint even as other battery suppliers face tariff pressure.

Shipbuilding: The MASGA Initiative

The most unusual element of the November 2025 agreement is the shipbuilding partnership. South Korea has pledged $150 billion to modernise US shipyards under the “MASGA” (Make American Shipbuilding Great Again) initiative.

The context is important. US shipbuilding capacity has declined dramatically over decades, while China has become the dominant global shipbuilder, producing more than half of the world’s commercial vessels. South Korea remains the world’s second-largest shipbuilder and has particular strength in advanced vessel types including LNG carriers and naval ships.

The agreement enables Korean shipbuilders, led by HD Hyundai Heavy Industries and HD Hyundai Mipo Dockyard, to invest in US shipyard capacity, provide training and expertise, and in some cases build auxiliary US Navy vessels in Korean yards. US-based Huntington Ingalls Industries (HII) has signed a cooperation MOU with HD Hyundai, and through 2026 additional partnerships have been announced, including joint programmes targeting Navy auxiliary vessel production.

For investors, the shipbuilding dimension creates opportunities across Korean shipyards, US naval suppliers, commercial shipping companies, and the broader maritime supply chain. It is also a significant strategic signal: the US views Korean industrial capacity as a key input to its competition with China.

Nuclear Energy: A New Dimension

The November 2025 agreement includes a notable nuclear energy component. The US has approved South Korea’s plan to build nuclear-powered attack submarines and will cooperate on securing enriched uranium and fuel reprocessing capabilities. This represents a significant shift, as the US had previously been cautious about enabling independent Korean nuclear capabilities.

On the civilian side, South Korea is one of the world’s leading exporters of nuclear reactor technology. Korean reactor builders including Korea Hydro and Nuclear Power (KHNP) have been winning major international contracts, including in the UAE, Czech Republic, and other markets. The US-Korea nuclear cooperation enables deeper partnership in next-generation reactor technology, including small modular reactors (SMRs), which have gained significant attention in 2026 as part of the AI data centre power demand story.

Foreign Direct Investment Flows

Korean FDI into the US has grown dramatically. Korean companies collectively invested over $150 billion in US facilities between 2022 and 2025, with the pace accelerating further through 2026 under the trade agreement. Major investments include Samsung’s Taylor facility, SK Hynix’s Indiana HBM plant, Hyundai’s Metaplant Georgia, LG Energy Solution’s multiple battery joint ventures, Samsung SDI’s facilities, and extensive investments across automotive parts, chemicals, and electronics.

US investment into South Korea is smaller but significant. US semiconductor equipment makers including Applied Materials and Lam Research have major Korean operations. US oil majors and traders have been expanding their presence given the agreement’s $100 billion energy purchase commitment, with 2026 LNG and crude shipments to Korea tracking well above 2025 levels. Private equity activity between the two countries has also grown.

The November 2025 agreement is designed to accelerate Korean FDI into the US further, particularly in strategic sectors. For investors, this means continued expansion of Korean manufacturing footprints across multiple US states, with implications for industrial real estate, construction, and employment in affected regions.

The China Factor

South Korea’s economic relationship with the US cannot be fully understood without reference to China. China is South Korea’s largest single trading partner overall, with significant interdependencies in intermediate goods, electronics components, and chemicals. Samsung and SK Hynix both operate major production facilities in China, though they have been shifting newer capacity elsewhere in response to US export controls.

The 2025 agreement with the US creates some tension with Korean-Chinese economic ties. By committing to deeper investment in US manufacturing, deeper defence cooperation, and more aggressive critical minerals coordination, South Korea has moved somewhat closer to the US side of the US-China competition. However, Korea has been careful to avoid explicit anti-China positioning, maintaining diplomatic and commercial engagement where possible, including through 2026 as US-China tensions have shifted through multiple phases.

For investors, this balancing act matters because it affects both Korean company earnings (Chinese demand for Korean memory chips, batteries, and automobiles remains significant) and the geopolitical premium or discount applied to Korean assets.

Future Outlook: Where the Relationship Is Headed

Several factors will shape US-South Korea trade over the coming years:

• Investment execution. The $350 billion in Korean commitments will take years to execute. Through 2026, implementation has been faster than expected, but larger components, particularly shipbuilding, will take longer. Watch for groundbreaking announcements, facility completions, and employment figures as indicators of continued follow-through.
• MASGA shipbuilding progress. The shipbuilding initiative is the most novel element of the agreement. Early milestones through 2026 have been encouraging; sustained progress will determine whether this transforms US naval industrial capacity or remains a political framing exercise.
• Semiconductor tariff dynamics. The agreement’s guarantee of favourable treatment is contingent on no other country getting better terms. Watch how Korean semiconductor policy develops relative to Taiwan and Japan deals through 2026 and into 2027.
• EV demand and subsidy structure. Korean battery and EV investments remain heavily dependent on continued US consumer demand for electric vehicles and the stability of federal subsidy structures. Any significant policy shifts could affect the economics.
• China-South Korea dynamics. If US-China tensions escalate further, South Korea may face pressure to choose sides more explicitly. If US-China relations ease, as recent 2026 developments suggest they might partially, the strategic premium behind the Korean deal could soften.
• Nuclear submarine programme progress. The US approval of Korean nuclear submarines is historic but complex to implement. Progress on this specific programme will be a strong signal of the depth of defence cooperation.
• Election dynamics. South Korea’s domestic politics have been turbulent in recent years. Any significant shift in Korean political leadership could affect the pace of agreement implementation.

Sector Implications and DCSC

The US-South Korea corridor cuts across some of the most important sectors of global trade, from semiconductors and batteries to automobiles, shipbuilding, nuclear energy, and defence. DCSC’s Dynamic Company Sector Classification system tracks over 1,500 sectors, giving investors the granularity to map their portfolio exposure to specific industries affected by the bilateral relationship.

Key sectors to explore include semiconductors (memory and logic), electric vehicles, EV batteries, automotive manufacturing and parts, shipbuilding, naval and defence equipment, nuclear energy, specialty chemicals, petroleum products, and critical minerals processing.

The US-South Korea relationship is likely to remain one of the most strategically important corridors in global trade through the rest of this decade. For investors, understanding the full breadth of Korean industrial capacity and its deepening integration with US strategic priorities is essential for identifying both near-term opportunities and longer-term structural themes.

Explore the full sector taxonomy at dcsc.ai.