Who Profits and Who Pays the Price?
[Trump's Tariff War – Part 3] Big Corporations Reap Currency Gains While Small Manufacturers Face Cost-Cutting Pressure: Who Profits and Who Pays the Price?
For Small Manufacturers, Domestic Price-Cutting Demands May Be Even More Frightening Than Trump's Tariffs
Imagine a small manufacturing company in South Korea.
Its machines have been running since early morning.
Workers are busy meeting production deadlines, while the owner worries about rising raw material costs and bank loan interest payments.
Then a phone call comes from a major customer.
"U.S. tariffs are making exports more difficult. We need you to reduce your costs and lower your supply prices this year."
For the owner of a small manufacturing business, those words can be devastating.
Labor costs, electricity bills, and raw material prices are already putting pressure on the company's finances. Lowering supply prices even further could leave almost no room for profit.
But an important question arises.
If large exporters can benefit from currency fluctuations through higher won-denominated export revenue or foreign exchange gains, why are their smaller suppliers still being pressured to cut costs?
This does not mean every major corporation engages in such practices.
However, it raises a serious question about whether profits and financial risks are being distributed fairly between large exporters and their suppliers.
As Trump's tariff war disrupts global trade, South Korea must also examine the structural inequalities within its own manufacturing industry.
1. Trump's Tariff Barriers: A Threat to Some Corporations, but Potentially an Opportunity for Others
President Donald Trump has pursued aggressive tariff policies under the banner of protecting American industries.
For companies exporting products to the United States, tariffs can weaken price competitiveness and reduce profitability.
However, not every exporter experiences the same financial impact.
The consequences depend on factors such as overseas production capacity, export contracts, raw material sourcing, and foreign exchange risk management.
Companies receiving payments in U.S. dollars may benefit when the Korean won depreciates.
Consider a hypothetical company receiving $10 million in export revenue.
At an exchange rate of KRW 1,300 per dollar, that revenue is worth KRW 13 billion.
If the exchange rate rises to KRW 1,400 per dollar, the same $10 million becomes KRW 14 billion.
That represents a difference of KRW 1 billion.
However, this additional amount does not automatically become net profit.
Imported raw material costs, foreign currency debt, currency hedging arrangements, and tariff-related expenses must also be considered.
Furthermore, an increase in the won-denominated value of export revenue is not necessarily the same as an accounting foreign exchange gain.
Nevertheless, a weaker won can improve profitability for exporters with substantial dollar revenues and relatively limited foreign currency expenses.
The important point is that tariffs and exchange rate fluctuations do not affect large corporations and small manufacturers equally.
2. If Large Corporations Benefit from Currency Movements, Why Must Their Suppliers Cut Prices?
What could be more frustrating for a small manufacturer than being forced to lower supply prices while its major customer enjoys improving profitability?
Large corporations constantly seek cost reductions to remain competitive in global markets.
Reasonable cost reductions achieved through innovation, productivity improvements, and more efficient manufacturing processes are necessary.
But the situation is very different when suppliers are pressured to lower prices regardless of their actual production costs.
Consider a small company supplying components at KRW 10,000 per unit.
If a major customer demands a 5% price reduction, the supply price falls to KRW 9,500.
For a company delivering 100,000 units per month, monthly revenue would fall from KRW 1 billion to KRW 950 million.
That is a reduction of KRW 50 million per month, or KRW 600 million annually.
Actual changes in profitability would depend on production volume, cost structures, and contract conditions.
However, when manufacturing costs cannot be reduced proportionally, lower supply prices can seriously damage profitability.
If a large corporation's cost-saving achievements are built primarily on shrinking its suppliers' profit margins, can that really be called shared growth?
3. Small Manufacturers Have Little Room Left to Cut Costs
Large corporations often have more options for reducing production costs, including automation, large-scale investment, and overseas manufacturing facilities.
Small manufacturers face a very different reality.
Companies specializing in mold making, injection molding, precision machining, casting, and surface treatment must cover substantial expenses for equipment maintenance, labor, electricity, and financing.
Many of these expenses cannot be reduced immediately when production volumes decline.
For companies already struggling with rising material prices and financing costs, further price reductions may become financially unsustainable.
The situation can be especially difficult for suppliers that depend heavily on one major corporation or a first-tier supplier.
Rejecting a price reduction request may raise concerns about losing future orders.
Under these circumstances, negotiations between large corporations and small suppliers may not take place on equal terms.
Although the companies are legally independent, their actual bargaining power can differ significantly.
Not every reduction in supply prices is unfair.
Some adjustments may be justified by productivity improvements or falling raw material prices.
The real problem is unilateral price-cutting demands that ignore rising costs and the financial difficulties of smaller suppliers.
4. Is It Fair to Pass Tariff Costs Down to Small Suppliers?
When Trump's tariff policies increase the cost of exporting to the United States, exporters have several possible responses.
They may adjust selling prices, reduce internal expenses, relocate production, or negotiate how costs should be shared with business partners.
But what happens when large corporations demand excessive price reductions from their domestic suppliers to offset tariff-related costs?
The financial burden created by U.S. trade policy may effectively be transferred to South Korean small manufacturers.
Several questions must be asked.
How much additional cost has the large corporation actually incurred because of tariffs?
Has it offset some of those costs through exchange rate movements or selling price adjustments?
Are the price reductions demanded from suppliers proportional to the company's actual financial burden?
What would constitute a reasonable and fair distribution of those costs?
Without sufficient transparency, small suppliers may find it difficult to determine whether the demands are justified.
If an exporter transfers tariff-related costs to smaller suppliers while maintaining or increasing its own profits, the fairness of that arrangement deserves serious scrutiny.
5. Falling Orders and Lower Supply Prices: A Dangerous Combination
One of the most serious situations a small manufacturer can face is a simultaneous decline in orders and supply prices.
Imagine a company supplying 100,000 components per month at KRW 10,000 each.
Its original monthly revenue is KRW 1 billion.
Now suppose orders fall to 80,000 units because of tariff barriers and weaker overseas demand.
At the same time, the customer demands a price reduction to KRW 9,500 per unit.
Monthly revenue would fall to KRW 760 million.
That represents a decrease of KRW 240 million, or 24%.
However, fixed expenses such as factory rent, equipment depreciation, and loan interest may remain largely unchanged.
The company would therefore face two simultaneous shocks: fewer orders and lower prices.
If rising material costs and difficulties obtaining financing are added to the situation, liquidity risks may become even more serious.
This is why small manufacturers cannot always regard price-cutting demands as ordinary commercial negotiations.
For some businesses, they can become a matter of survival.
6. Large Corporations Report Strong Profits While Suppliers Struggle: Is This a Healthy Industrial Ecosystem?
High operating profits are not inherently a problem.
They may reflect technological innovation, strong management, higher productivity, and global competitiveness.
The critical question is how those profits are generated.
If a company earns substantial profits through innovation and efficiency, its success should be recognized.
However, if profits are protected by imposing excessive cost reductions on suppliers or exploiting unequal bargaining power, concerns about fairness are justified.
A profitable large corporation and a loss-making supplier do not, by themselves, prove unfair business practices.
Differences in technology, productivity, market conditions, and cost structures can also explain variations in profitability.
Nevertheless, if the profitability gap between major customers and their suppliers continues to widen, the underlying causes deserve investigation.
No matter how impressive a major corporation's financial results may be, an industrial ecosystem cannot remain healthy if its suppliers are collapsing.
7. Who Receives the Benefits of Currency Appreciation or Depreciation, and Who Bears the Costs?
Exchange rate movements affect exporters and importers differently.
A weaker Korean won can benefit companies earning substantial revenues in U.S. dollars.
At the same time, it can increase costs for businesses relying on imported raw materials.
Many small manufacturers purchase materials from overseas or use inputs whose prices are influenced by international markets.
For these companies, a weaker won may increase production costs.
Yet suppliers receiving payments in Korean won may not directly benefit from the currency effects enjoyed by large exporters.
Consider a large corporation that exports finished products in dollars while purchasing components from domestic suppliers in won.
Even if the exporter receives more won for the same dollar revenue, its suppliers' prices do not automatically increase.
In fact, those suppliers may simultaneously face higher costs for imported materials.
This can create an uneven distribution of financial benefits and burdens across the supply chain.
If the exporting company captures the benefits of currency movements while smaller suppliers absorb rising costs, the fairness of those commercial arrangements deserves examination.
8. The Government Must Look Beyond Corporate Profits and Examine Supplier Profitability
South Korea has made export growth and advanced industrial development major economic priorities.
Strengthening the competitiveness of global companies such as Samsung Electronics and SK hynix is important for the national economy.
However, strong export figures and high profits among major corporations do not necessarily mean the entire manufacturing sector is healthy.
Small companies specializing in mold making, injection molding, precision machining, casting, welding, and surface treatment also need sustainable business conditions.
The government should closely examine how supply prices are negotiated and adjusted between major corporations and their suppliers.
It should also consider whether changes in raw material prices and exchange rates are reflected fairly in supply contracts.
Existing protections, including South Korea's Fair Transactions in Subcontracting Act and the supply payment indexation system, are intended to address certain forms of unfair subcontracting and cost-related disputes.
However, having regulations in place does not automatically eliminate unfair practices.
Small suppliers also need practical ways to raise concerns without fearing commercial retaliation.
Industrial policy should measure not only the export performance of major corporations but also the profitability, financial stability, and employment conditions of their suppliers.
9. Genuine Shared Growth Means Sharing Risks, Not Just Demanding Sacrifices
Large corporations and small manufacturers are not merely buyers and sellers.
They are interconnected partners in the same production system.
Major corporations rely on numerous suppliers for components, materials, manufacturing processes, and specialized technologies.
A sustainable industrial ecosystem requires fair commercial relationships.
When raw material costs rise, supply prices should be subject to reasonable negotiation.
When tariffs create additional expenses, those costs should be assessed transparently and shared according to actual circumstances.
When currency movements improve profitability, companies should consider how those changes affect the wider supply chain.
This does not mean a company must automatically distribute its foreign exchange gains to suppliers.
The essential principle is that stronger companies should not use their bargaining power to transfer unreasonable financial risks to weaker partners.
A supply chain that depends on smaller companies continuously absorbing losses cannot remain stable indefinitely.
Genuine shared growth begins when companies distribute risks and rewards fairly, rather than demanding sacrifices from suppliers whenever economic conditions become difficult.
10. The Reality of South Korean Manufacturing May Be More Troubling Than Trump's Tariffs
Trump's tariff policies are external forces that South Korean manufacturers cannot directly control.
But the business practices between domestic corporations and their suppliers are issues that South Korea can address.
It is reasonable to question whether U.S. tariffs justify automatic or excessive price reductions imposed on domestic suppliers.
If major corporations benefit from exchange rate movements, those financial effects should be examined accurately.
The actual burden of tariffs, currency fluctuations, and rising supplier costs should all be considered when evaluating whether business arrangements are fair.
Small manufacturers are not simply subcontractors whose only purpose is to reduce costs for large companies.
They employ skilled technicians and workers, maintain specialized production capabilities, and contribute to national industrial competitiveness.
The success of major corporations often depends on the capabilities of these smaller businesses.
Treating suppliers merely as targets for endless cost reductions can weaken the competitiveness and resilience of the entire manufacturing supply chain.
Conclusion: Corporate Profits Should Not Come at the Expense of Small Manufacturers
Trump's tariff war has introduced new uncertainty into the global economy.
As tariff barriers rise, exporters must reconsider pricing, production plans, and international business strategies.
Some companies may protect or improve profitability through favorable currency movements.
Others may suffer from higher imported material costs and declining orders.
The central concern is whether these financial pressures are being disproportionately transferred to small domestic suppliers.
If large corporations use tariffs as a reason to demand lower supply prices, the fairness of those demands must be examined.
And if a corporation earns substantial benefits from currency movements while imposing excessive cost reductions on its suppliers, that business practice deserves strong criticism.
If major corporations report enormous profits while smaller manufacturers must borrow money to pay workers and keep their factories running, can we honestly call that shared prosperity?
We cannot automatically conclude that every corporate profit comes from supplier exploitation.
However, unfair price reductions, unreasonable cost transfers, and abuses of superior bargaining power must be addressed wherever they occur.
The South Korean government must look beyond the success of major exporters and the growth of the semiconductor industry.
It must also pay attention to the smaller manufacturers that form the foundation of the country's industrial economy.
Mold making, injection molding, precision machining, casting, welding, and surface treatment are essential parts of that foundation.
If these industries weaken, South Korea's long-term manufacturing competitiveness may also suffer.
Trump's tariff barriers are a serious challenge to global trade. But if South Korean corporations transfer the resulting pressures unfairly onto domestic suppliers, that is a problem South Korea itself must confront.
We need an economy in which major corporations can succeed without forcing smaller businesses to sacrifice their financial stability.
Small manufacturers deserve reasonable profits, and their workers deserve secure employment.
South Korea's true manufacturing strength should not be measured solely by the operating profits of its largest corporations.
It should also be measured by the survival, resilience, and growth of the thousands of smaller businesses that support them.
References and Official Sources
Financial Supervisory Service — DART: Corporate financial statements, foreign exchange gains and losses, and operating profits
https://dart.fss.or.krKorea Fair Trade Commission: Subcontracting practices, fair trade regulations, and related investigations
https://www.ftc.go.krMinistry of SMEs and Startups: Supplier payment indexation and SME support policies
https://www.mss.go.krBank of Korea — Economic Statistics System: Exchange rates, trade-related statistics, and economic indicators
https://ecos.bok.or.krKorea Federation of SMEs: Surveys and research on supplier pricing and SME business conditions
https://www.kbiz.or.kr
Editor's Note: This article is a critical economic commentary examining Trump's tariff policies and structural inequalities within South Korea's manufacturing sector. It does not establish that any specific major corporation has earned extraordinary foreign exchange gains while unlawfully forcing suppliers to reduce prices. The financial examples are hypothetical and are provided for illustration.
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