Localization in Full Swing... Why Kolmar Korea and COSMAX Are Smiling Despite U.S. Tariff Bomb

[Korea Financial Times, Kim Nayoung] Amid growing concerns over a U.S.-led "tariff war," Korean cosmetics ODM (Original Design Manufacturing) firms Kolmar Korea and COSMAX have positioned themselves as insulated players. Their early investments in U.S. production bases and localization strategies are now paying dividends.

According to industry sources on April 8, U.S. President Donald Trump announced on April 2 that a 25% reciprocal tariff would be imposed on all products imported from South Korea. A baseline 10% tariff has already been in effect since April 5, with the reciprocal tariff set to apply from April 9.

While fears of a "tariff bomb" ripple across industries, Kolmar Korea and COSMAX appear largely shielded. Analysts suggest the tariff policy could even create opportunities for these ODM leaders, given their accelerated localization plans and existing U.S. production infrastructure.

Kolmar Korea is nearing completion of its second U.S. factory in Pennsylvania this month, with operations expected to begin in the first half of the year. Once operational, Kolmar USA’s production capacity will expand to 300 million units annually.

COSMAX, through its U.S. subsidiary COSMAX USA, is also ramping up local production. Its New Jersey facility boasts an annual capacity exceeding 270 million units.

Industry observers anticipate positive momentum for both subsidiaries, which have long struggled with losses. In 2024, Kolmar USA reported a KRW 50.3 billion net loss, while COSMAX USA recorded a KRW 32.2 billion net loss. However, expectations are rising that the current tariff war landscape could accelerate a turnaround, as more clients outsource production to local facilities.

A Kolmar Korea representative stated, “While labor costs in the U.S. are higher, clients seeking to avoid reciprocal tariffs may increasingly turn to local production, benefiting our U.S. subsidiary.”

Production capacity also remains robust. The company asserts there will be no strain in fully manufacturing export-bound products locally, even if orders surge in the region. He added, 'Even if U.S. production volumes increase significantly, we can comfortably handle the load.'

Additionally, most K-beauty products are currently distributed through a 'reverse direct purchasing' model, where local consumers buy directly from domestic platforms. If brands were to export cosmetics directly to the U.S., they would be subject to tariffs. However, when products are sold via reverse purchasing, the tariff burden may instead fall on local consumers.

A COSMAX official explained, "K-beauty brands often rely on individual reverse direct purchasing rather than direct market entry by client companies". Under current policies, cosmetics purchased from countries other than China are generally exempt from tariffs if the transaction amount is below $800.

However, uncertainties remain. Some clients may abandon the U.S. market entirely due to tariff pressures. An industry insider noted, “The possibility of clients exiting U.S. operations remains a variable. Clear impacts will likely emerge after Q2 2025.”

Meanwhile, K-beauty claimed 22.4% of the U.S. cosmetics import market in 2024, surpassing France to take the top spot. Exports reached an all-time high of $1.9 billion (approximately KRW 2.7981 trillion).

Kim Nayoung, Korea Finacial Times (steaming@fntimes.com)