Implications of the Japan–Korea Trade Dispute

Japan and South Korea are among the largest economies in Asia. Post World War II, both economies grew at rapid pace, becoming the economic powerhouses we know today. Unfortunately, things are not as rosy as they seem; both countries are undergoing a trade dispute on top of rising military and geopolitical tensions. To understand the origins of today’s tensions between the two East Asian countries, we will have to explore their relationship throughout the 20th century. 

South Korea’s resentment towards Japan can be traced back to 1910, when Japan colonized the Korean peninsula. During the colonization, Koreans were subjected to working under poor conditions in Japanese mines and factories. Furthermore, thousands of Korean women were subjected to forced sex work in Japanese military brothels, an occurrence branding them the name “comfort women”. The Japanese colonization of Korea rendered Korea’s culture, language, and history at risk of erasure. In 1945, following the defeat of Axis powers in the Second World War, Japanese rule ended. Multiple years of negotiations ensued until the two nations signed a treaty in 1965, aiming to resolve colonial-era claims and damages in exchange for $800 million of economic aid and loans from Japan. At the time, this figure amounted to more than a quarter of Korea’s GDP. Nevertheless, many people opposed the treaty claiming that it did not provide sufficient reimbursement to issues such as Korea’s “comfort women”. 

Decades later, in 2015, the two nations once again came together to resolve these issues. The Japanese government agreed to send $10 million to Seoul to establish a foundation to support surviving “comfort women”. In exchange, both countries agreed not to criticize each other on such sensitive issues in the global stage. Despite the agreement, many Korean civilians and interest groups were unhappy, stating that they were not consulted during negotiations. It was not long before Korean-Japanese resentment escalated into mass demonstrations in Korea with a call to Korean consumers to boycott Japanese goods. In 2017, then new president of South Korea, Moon Jae-In stated that Korea would not accept the 2015 deal made by his predecessor. This also caused resentment to grow in Japan, where many felt that South Korea made it impossible to settle colonial claims by “moving the goal post”. At the end of 2018, the Japanese government was left infuriated by a South Korea Supreme Court decision to hold Japanese companies accountable for the forced labor of Korean workers in Japanese factories during World War II. The two companies subjected to compensate Koreans for forced labor during WWII were Nippon Steel & Sumitomo Metal and Mitsubishi Heavy Industries. Before long, these tensions spread to trade ties and disputes that we see in 2019.

A PCB Board

Today, some of Japan’s exports are heavily used in manufacturing South Korean products. These Japanese exports include chemicals, of which Japan provides up to 90% of the world supply and is crucial for manufacturing semiconductors and display screens. Semiconductors are vital to produce electronic devices such as smartphones. South Korea is home to semiconductor giants such as Samsung and SK Hynix; both companies in 2019 supplied 61% of the components used to make memory chips globally. Semiconductor sales made up to 92% of South Korea’s export growth, portraying the vast reliance of South Korea on Japan’s chemical exports.

As of July 2019, Japanese Prime Minister Shinzo Abe added trade restrictions on Korean companies for the purchase of chemicals such as fluorinated polyimide and hydrogen fluoride, which are used to make smartphone displays and semiconductors respectively. In addition to these trade restrictions, South Korea was removed from Japan’s “whitelist”. The “whitelist” consists of a group of countries that Japan considers to be trustworthy trading partners. To be classified as a trustworthy trading partner is to be considered part of a group of countries that would not misuse goods bought from Japan for reselling to sanctioned countries such as North Korea and Iran or for unauthorized military use. Companies in “Non-whitelist” countries would require case-by-case approval for purchasing Japanese products; approvals taking up to 90 or more days and the need to have goods approved every 6 months.

This deterioration of trade ties could imply higher prices for South Korean products and force companies like Samsung and SK Hynix to look for alternative supply sources. Despite the negative implications of the trade dispute, South Korean companies like Samsung Electronics might have been able to benefit from the supply chain issues. Before trade disputes, prices for DRAM memory chips were at new lows due to an expectation of an abundance in supply; this expectation, led to Samsung Electronics’ worst drop in profits in four years. By Japan tightening its export controls, the supply of DRAM chips dropped, resulting in higher prices for Samsung and other Korean manufacturers and leading to better results. Experts claim that Japan’s trade restrictions on South Korea may become self-harming due to the loss of trust between Korean companies and their Japanese counterparts, potentially reducing future business opportunities among them. 

Besides the supply chain and economic impacts of the trade dispute due to growing tensions, military tensions are also on the rise. In August 2019, the South Korean government announced its withdrawal from a highly sensitive intelligence-sharing pact, The General Security of Military Information Agreement (GSOMIA), which allowed the two countries to share information regarding North Korea’s missile and nuclear activities, ensuring that both countries are defensively aligned. Leaving from the intelligence-sharing agreement meant that South Korea will no longer be rapidly notified regarding irregular activities in regional waters. The two Asian countries can still share information through their common ally, the United States; however, the lag in doing so may be detrimental in monitoring North Korea’s nuclear threats.

Tiennammen Square, Beijing

The worsening Japan-Korea relationship has also weakened geopolitical ties. The United States and China are attempting to be the mediator to resolve tensions in hopes of gaining an edge in the geopolitical landscape. China has publicly supported a resolution to the Korea-Japan trade tension but at the same time, Chinese companies are attempting to replace Japanese counterparts in export industries. Despite all this, China hopes to resolve trade disputes so that the Japan-South Korea-China free trade agreement negotiations will not be hampered, an unlikely outcome due to escalating tensions. China faces a dilemma in this situation: in the long run, it benefits economically if the trade disputes are resolved but it also benefits geopolitically if the Korea-Japan relationship worsens. A worsening relationship between South Korea and Japan weakens US influence in the region. The lack of intervention of the Trump administration in this dispute has led some experts to believe that China’s global influence could indirectly be strengthened, a prospect that is detrimental to the interests of the United States.

In conclusion, the Japan-Korea dispute is a multi-faceted issue spanning from the dark history between the two nations to this very day. It is an issue that weakens not only the trade ties of both nations but also their military and geopolitical ties. Countries such as China may stand to gain from the coming uncertainty of the disputes while the United States may lose valuable influence in the region. Overall, it is best for South Korea and Japan to resolve their tensions in order to return to their trade, military, and geopolitical normality.

+ posts

Leave a Reply

Your email address will not be published. Required fields are marked *