South Korea Banks on Shipbuilding to Offset U.S. Tariff Pressure

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  • As South Korea negotiates a suspended 25% U.S. tariff, its globally competitive shipbuilding sector is gaining strategic relevance in trade discussions.
  • Once a symbol of national industrial growth, shipbuilding now accounts for nearly 4% of exports, with major contracts and U.S. defense ties bolstering its global stature.
  • Despite recent successes, challenges such as falling orders, China’s dominance, an aging workforce, and the need for eco-friendly vessels are putting pressure on the industry’s future.

Amid ongoing trade tensions with the United States, South Korea is positioning its world-class shipbuilding sector as a strategic lever in negotiations. Already burdened by tariffs on steel and automotive exports, Seoul is focused on avoiding a 25% country-specific tariff that remains suspended until July 8. In this context, the shipbuilding industry may serve as a valuable bargaining chip, both economically and geopolitically.

From Strategic Industry to Global Powerhouse

South Korea’s shipbuilding roots trace back to the 1970s when then-president Park Chung-hee identified heavy industries such as steel and shipbuilding as key to economic growth. With state backing, companies like Hyundai and POSCO began to scale rapidly, helping the nation surpass European competitors. A defining moment came in 1987 when Hyundai acquired Sweden’s Kockums Shipyard’s iconic Goliath crane, symbolising a shift in global shipbuilding dominance.

In the decades that followed, shipbuilders such as Hyundai Heavy Industries and Samsung Heavy Industries invested heavily in R&D. This gave South Korea a significant edge in producing high-value-added vessels, including LNG carriers and offshore platforms. Today, it ranks as the second-largest shipbuilding nation globally, trailing only China.

Export Driver and Economic Anchor

Shipbuilding played a key role in South Korea’s record exports in 2024, contributing nearly 4% of total outbound trade. The sector grew nearly 20% year-on-year, reaching $25.6 billion, and employs around 120,000 people directly—about 1% of the national workforce. Industrial hubs like Ulsan and Geoje see even higher indirect employment levels. This year alone, new orders have surpassed 13 trillion won ($9.4 billion), with Hanwha Ocean landing a standout $1.6 billion contract in March to build LNG carriers for Evergreen Marine of Taiwan.

A Strategic Asset in U.S.-Korea Relations

South Korea’s shipbuilding capabilities have drawn attention from U.S. officials. Trade Minister Ahn Duk-geun highlighted the industry’s value in recent talks, noting that U.S. President Donald Trump is interested in enhancing bilateral shipbuilding cooperation. At the APEC finance ministers’ meeting in May, U.S. Trade Representative Jamieson Greer met with HD Hyundai’s vice chairman before meeting South Korean officials, underscoring the industry’s growing diplomatic weight.

Hanwha Ocean’s authorization to perform dry-dock maintenance on a U.S. Navy vessel—the first non-American firm to do so—further reflects Washington’s strategic interest. With rising tensions in the Taiwan Strait and concerns over China’s growing naval capacity, the U.S. is increasingly looking to South Korea as a reliable partner in maintaining its regional military readiness. The ship maintenance and overhaul market alone is valued at over $60 billion annually.

Challenges Clouding the Horizon

Despite high-profile contracts and geopolitical significance, South Korea’s shipbuilding sector faces mounting challenges. Market share is slipping as China extends its lead, and global orders have dropped sharply, falling by nearly half in the first four months of 2025 compared to the same period last year. Industry experts warn that the recent boom may be shorter-lived and less intense than past cycles.

Environmental and demographic pressures are also mounting. As demand for greener vessels rises, regulatory reform is needed to support next-generation shipbuilding. Meanwhile, cities like Geoje are experiencing steep declines in younger populations, making it harder to maintain a skilled workforce.

A Balancing Act Between Growth and Sustainability

With its established global reputation and strong export performance, South Korea’s shipbuilding industry remains a powerful tool in trade negotiations and a pillar of the national economy. However, to retain its position and continue driving growth, the sector must address evolving environmental standards, rising competition, and internal workforce constraints.

Whether as a symbol of industrial might or a key player in international diplomacy, South Korean shipbuilding now stands at a crossroads, offering both opportunity and uncertainty in equal measure.

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Source: Barron’s