Japan

Japan and South Korea are on the verge of a trade war

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The long-standing contradictions between Japan and South Korea went beyond diplomacy, with the result that the 3rd and 11th largest economies in the world were on the verge of a trade war.

A new confrontation, brewing between the two allies of Washington in Northeast Asia, is threatening to seismic shifts not only in the global electronics supply chain but also in regional geopolitics. At the same time, both sides do not want de-escalation, and the traditional mediator Washington keeps aloof.

The government of Japan earlier this month announced the introduction of new restrictions on the export of high-tech materials to South Korea, citing the “significant damage” inflicted on the trust relationship of the two countries. Now for export to South Korea of ​​three types of materials (fluorinated polyimide, hydrogen fluoride and resists) used in the production of semiconductors and displays for smartphones and televisions, individual applications will be required.

Bilateral relations between Tokyo and Seoul deteriorated against the backdrop of South Korea’s claims to pay compensation for forced labor of people in the country during Japan’s colonization of the Korean Peninsula in 1910-1945.

In October, the Supreme Court of the Republic of Korea upheld the conviction in 2013, according to which the Japanese company Nippon Steel & Sumitomo Metal Corp. must pay compensation to four South Korean workers for forced labor in its factories during World War II. Japan condemned the court decision.

Tokyo argues that the issue of compensation for the use of bonded labor of Koreans has already been resolved by an agreement in 1965, according to which Japan provided South Korea with the financial assistance of $ 500 million. Stricter export control measures in Japan can slow down the export process by several months, causing a blow to South Korean technology giants such as Samsung Electronics Co, SK Hynix Inc and LG Display.

Japanese companies may also suffer collateral damage since some of them require Korean-made components and may lose valuable Korean customers. However, such damage was almost certainly taken into account in the calculations of Tokyo.

South Korean Finance Minister Hon Nam Ki said that he did not rule out the possibility of direct countermeasures against Japan if Tokyo would keep restrictions on the export of high-tech materials to South Korean companies for a long time. South Korean social network users began calling for a boycott of Japanese goods, including cars and beer. There were also calls to avoid Japan as a place of rest.

Seoul decided to go to the World Trade Organization to challenge the actions of Tokyo. However, Japan may declare that it simply changed the process of export to Korea, and did not stop deliveries. On the other hand, the WTO for the first time decided in April that considerations of national security could serve as a basis for trade restrictions. These are the very reasons relied on by the Japanese government.

South Korean Foreign Minister Kang Kyung-wha complained about Japan to US Secretary of State Mike Pompeo. However, Washington refused to mediate in this conflict.

Meanwhile, Japan has already prepared for further escalation. Tokyo made it clear that in August, Korea could be excluded from the “white list” of countries that can relatively easily buy Japanese electronic components that are considered important to national security.

If this happens, other important sectors of the Korean economy, such as the automotive sector, will be put at risk. In the absence of unexpected developments or US intervention, a worsening of the situation seems likely.

If a trade war breaks out between Asian economic giants, it will have innumerable consequences for intricate electronics supply chains around the world. This will put additional pressure on the world economy, which has already suffered from the trade war between Washington and Beijing. The consequences can go beyond the economy. If the United States intervenes and takes the side of Japan, South Korea can go to the orbit of China.

While China is the largest trading partner of South Korea and Japan, Tokyo has proven its willingness to confront Beijing both on the diplomatic front and in the security sphere, but Seoul is not. If Seoul gets close to Beijing, it can change the security situation in Northeast Asia.

At the same time, the North Korean factor can play its role. If the rapprochement between Pyongyang and Washington accelerates and gives the US President Donald Trump a much-needed diplomatic victory, relations with Seoul may become more valuable for him, which would mean a very unfavorable scenario for Tokyo.

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