Mid-sized firms pocket surprise Q2 gains as US tariff refunds roll in

Tariffs imposed by the Donald Trump administration are turning into an unexpected earnings windfall for a growing number of South Korean companies. After the US Supreme Court ruled in February that reciprocal tariffs levied under the International Emergency Economic Powers Act were unlawful, companies that paid those duties last year began receiving refunds in the second quarter of this year. US Customs and Border Protection had paid out $100 billion in refunds through the end of last month.

Hansol Paper disclosed on July 30 that it posted consolidated second-quarter sales of 592.74 billion won ($419 million) and operating profit of 50.84 billion won. Sales rose 4.9 percent year on year, while operating profit surged 162.8 percent. Net profit for the period came in at 29.96 billion won, up 253.3 percent. Compared with the previous quarter, sales climbed 5.9 percent and operating profit jumped 352.0 percent.

The company attributed the results to higher sales of coated board, rising prices for thermal paper and the US tariff refund. The global spread of Korean pop culture drove up demand for packaging materials, while supply disruptions involving Chinese thermal dyes pushed thermal paper prices higher. A partial refund of tariffs previously paid in the United States further amplified the profit gain, the company said.

LX Hausys saw a similar effect. The company's consolidated second-quarter sales reached 939.7 billion won, up 14.7 percent year on year, while operating profit surged 329.0 percent to 54.9 billion won. Net profit for the period came in at 47.1 billion won, swinging to a profit from a loss. Cumulative first-half operating profit reached 100.8 billion won, up 407.5 percent from the same period last year.

The results far exceeded market expectations. FnGuide had put the consensus estimate for LX Hausys's second-quarter operating profit at 31.3 billion won, but the actual figure beat that by more than 75 percent. LX Hausys said the results reflected expanded domestic business-to-consumer sales, overseas business growth, cost reductions and one-time factors including the US tariff refund.

The refunds trace back to a Feb. 20 ruling by the US Supreme Court, which found that IEEPA did not grant the president authority to impose reciprocal tariffs or so-called fentanyl tariffs. The US Court of International Trade subsequently ordered US Customs and Border Protection to return to importers the duties collected under IEEPA.

The scale of refunds is vast. According to documents CBP submitted to the court, the total pool of IEEPA tariff refunds spans about 330,000 importers and more than 53 million import declarations, with an estimated value of $166 billion. The Penn-Wharton Budget Model at the University of Pennsylvania projected that final refunds could reach as much as $175 billion.

Disbursements are also moving quickly. CBP reported to the Court of International Trade that it had already refunded about $100 billion in tariffs as of July 31. The agency had accepted and approved for processing about $128.7 billion. While some had initially expected the process to take years, roughly 60 percent of the total eligible amount was paid out within just a few months.

Korean companies account for a meaningful share of the eligible refunds. The Korea Customs Service estimated in February that of the roughly 24,000 Korean exporters affected by the reciprocal tariffs, about 6,000 had traded under delivered duty paid terms — meaning the Korean exporter bore the tariff cost. Even under DDP arrangements, however, a Korean company or its local subsidiary must have been registered as the official importer of record at the time of US customs clearance to receive a direct refund.

The tariff refund effect is expected to carry into the third quarter, as the US refund process is proceeding on a rolling, company-by-company basis and many firms have yet to book their refunds. Importers must file individual claims, which are then reviewed and paid out sequentially.

Agricultural machinery maker TYM is a prime example. Kiwoom Securities said Wednesday that if reciprocal tariff refunds are reflected in the third quarter, there is room for additional earnings improvement at TYM. The company, which counts North America as its primary market, has been directly exposed to shifts in US tariff policy since last year. Kiwoom Securities noted that the effective tariff rate on TYM tractors climbed from the high teens last year to 25 percent in April and May before falling back to 15 percent in June.

TYM already posted notable earnings improvement in the first half of this year, and a third-quarter tariff refund would leave room for further gains. The company's consolidated first-half sales reached 552.2 billion won, up 13.1 percent year on year, while operating profit rose 59.1 percent to 62.6 billion won.

Daedong also carries a high share of North America exports, leaving open the possibility of additional profit from tariff refunds. However, whether a Korean company ultimately benefits depends on who was registered as the importer of record and actually paid the duties at US customs. If the Korean parent company or its US subsidiary was the importer, it may be eligible for a refund — but if a local dealer or distributor bore the tariff cost, the benefit may not flow directly to the Korean firm's bottom line.