South Korean automakers and battery firms are closely monitoring this year's US presidential election and calmly bracing for negative impacts in the case of the Joe Biden administration’s Inflation Reduction Act possibly being repealed in a second Donald Trump term.

The IRA, which is intended to boost American manufacturing and keep China in check, offers incentives to buyers of electric vehicles with certain battery parts and materials secured from US soil or via international partners. Taking the US-first legislation in stride, Korean companies, namely Hyundai Motor Group, LG Energy Solution, Samsung SDI and SK On, have committed billions of dollars to build manufacturing plants on US soil.

Trump’s recent back-to-back wins in the early primaries in Iowa and New Hampshire have seemingly solidified the former US president as the candidate again for the Republican Party. According to the latest polling averages analyzed by The Economist on Sunday, Trump held a voting intention of 45 percent, with Biden closely behind at 43 percent.

Trump and his election camp have repeatedly expressed the intention to scrap the IRA. In response, the state-run Korea International Trade Association voiced concerns over the "Trump Risk." However, industry insiders appear to remain vigilant.

“Hyundai and Kia do not have reasons to panic yet,” an auto industry official said.

“Even if Trump gets reelected, he’s not going to be able to change the law right away. The (carmakers) are drafting various scenarios but the election is still very far away and many election pledges end up as empty words.”

An official working in the battery sector noted that LG Energy Solution is exploring the option of selling the Advanced Manufacturing Production Credit incentive rights under the IRA to a third party, explaining that the sell-off option will likely be based on various business factors such as clients and the market situation.

“It’s true that the IRA has a positive effect on (LG Energy Solution’s) profitability,” the official said.

“But the company has long regarded the North American region as a key market and executed investments even before the implementation of the IRA. The main plan appears to be achieving sustainable growth with or without the IRA.”

Experts pointed out the unlikeliness of Trump to follow through with his campaign pledge, yet warned against unfavorable actions that a second Trump presidency could pose for Korean firms if the he decides to gut the IRA, which would decelerate the transition to electric vehicles.

“It is unlikely that a divided Congress would be able to repeal the legislation, but the Trump administration could use the regulatory process to make it more difficult for firms to take advantage of the benefits under the IRA,” said Troy Stangarone, senior director at the Korea Economic Institute of America.

Stangarone added that a Trump administration could take steps to slow the deployment of EV charging stations in the US to slow demand for EVs, and explained how such measures would be a critical mistake.

“With a slower uptake (for EVs) in the US, it will become more challenging for Korean firms to gain the economies of scale needed to compete with Chinese production abroad,” he said.

“Undermining EVs in the US would likely push Korean and other firms to turn to cooperate more with China to gain access to critical minerals, the opposite of the US objectives.”

Tim Bush, an electric vehicle battery researcher at global financial services provider UBS, underlined that key swing states such as Michigan and Georgia with a significant amount of EV battery and EV-related investments have benefited from the IRA.

LG Energy Solution operates two battery manufacturing plants in Michigan. Hyundai Motor Group is building a $5.5 billion auto plant and two joint battery facilities, with LG Energy Solution and SK On, in Georgia.

“If Trump continues looking to repeal the IRA, he risks losing these key battleground states,” said Bush.

“Trump has been all about bringing jobs back to the US and bringing manufacturing back to the US. And these IRA investments are doing exactly that. You actually have a lot of contradictions between what Trump is saying about what he wants to do with the IRA while he’s trying to win the Republican nomination versus the realities of what it might mean to repeal and how that would impact this chances in getting elected.”

Bush alluded to the example of how Trump could not repeal the Affordable Care Act, commonly known as Obamacare, despite winning the 2016 US presidential election partly because some Republican states, which were beneficiaries of the legislation, broke party rank and voted against the repeal.

“I think it’s likely you would see a similar situation with the IRA,” he said.

“A lot of these investments is in red states and the representatives of these states will vote with their constituents because they want to stay in office and would likely break party rank.”

Tom Ramage, an economic policy analyst at the KEI, advised that Korean companies should keep investing in their American manufacturing if Trump becomes the next US president.

"A Trump administration would foremost prioritize 'America first' policies aimed towards supporting American workers and American jobs," he said.

"Korean companies have already invested billions of dollars to support new manufacturing facilities in the United States. Given that these projects support local communities and allow for 'Made in America' labels to be stamped on new automobiles and batteries, continued investment in American manufacturing is likely to be a major benefit for Korean companies."