(EDITORIAL from Korea Herald on July 11)

Korea's industrial drift
Samsung, LG's sharp earnings drop highlights deeper industrial weaknesses, rising trade risks

Giants don't stumble quietly. The latest earnings from Samsung Electronics and LG Electronics, two pillars of South Korean manufacturing, signal not just a downturn but deeper structural cracks.

Their second-quarter profits more than halved, falling far short of even the most conservative forecasts. While escalating US tariffs, rising logistics costs and fierce competition from China are the immediate culprits, the roots of this crisis stretch further, exposing an industrial model increasingly ill-suited to the global economy.

The headline figures are stark. During the April-June period, Samsung's operating profit tumbled 56 percent from a year earlier, with LG's down nearly 47 percent. The damage extends beyond consumer electronics. Semiconductors, long the crown jewel of Korean industry, are now struggling, weighed down by softening demand and intensifying trade headwinds. US President Donald Trump has issued a clear warning: A 25 percent tariff on Korean imports will take effect in August unless Seoul makes sweeping concessions. Yet Korean exporters were already faltering before these new duties came into play.

To see this downturn as merely a reaction to tariffs, however, would miss the larger story. South Korea's competitive erosion has been gathering momentum for years. Its share in global markets for semiconductors, automobiles, steel and shipbuilding has steadily slipped. Meanwhile, China's industrial ascent has been relentless, powered by vast state subsidies and an intense focus on scale, speed and technological edge. Korean firms, by comparison, remain tied to an outdated dependence on low-cost production and assembly exports. Despite rising research and development budgets, true breakthroughs have been scarce.

The semiconductor sector underscores the gravity of this challenge. While Samsung and SK hynix contend with excess inventories and tepid demand, US-based chipmaker Nvidia has surged ahead, propelled by dominance in artificial intelligence chips. This week, its valuation surpassed US$4 trillion -- a symbolic marker of technological supremacy. Korean chipmakers, by contrast, face regulatory delays and sluggish infrastructure rollouts. Hold-ups in commercializing advanced memory technologies, such as high-bandwidth memory products, have only widened the gap.

Meanwhile, China's semiconductor firms are accelerating their advance. Players such as YMTC and SMIC are closing in, backed by generous government subsidies and aggressive capital spending. In some cases, they are investing five times more relative to revenues than their Korean rivals.

All of this is unfolding against a backdrop of escalating trade pressure from Washington. The latest US tariff regime is designed to extract concessions from allies, regardless of existing trade agreements. For Korean exporters, the risks are immediate, particularly in key sectors such as automobiles, steel and consumer electronics.

What, then, is required? In the near term, Seoul must negotiate with clarity and precision, defending core export sectors while avoiding concessions that would further erode industrial competitiveness. This may involve politically sensitive trade-offs, including energy imports or enhanced defense cooperation.

Yet in the longer term, the more important task is structural reform. Without a fundamental overhaul of its industrial model, South Korea will keep losing ground. That means accelerating investment in next-generation technologies like AI chips and electric vehicles, while dismantling regulatory barriers that stifle growth. Labor policies, including rigid limits on working hours in high-tech industries, must also be addressed.

There is no margin for delay. Industry experts warn that the next five years represent a critical window for Korea's semiconductor industry. If missed, the consequences could be irreversible.

South Korea needs a cohesive strategy that blends targeted state support, corporate agility and a clear-eyed assessment of global realities. Its leading firms must reinvent their business models and respond decisively to the twin pressures of trade disputes and technological disruption before the window closes.
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