Even as the global economy continues to be under a cloud, thanks to constant trade-related tensions between key economic entities such as the US and China, or indeed, the UK and the European Union, there are rumblings of another trade war brewing — this time between two US allies, Japan and South Korea.
What is the dispute?
According to CNBC, on July 1, Japan placed export restrictions on South Korea with regard to three key high-tech materials that are critical for manufacturing semiconductors. Japan reportedly also removed South Korea from its “white country” list, that is, nations Japan deems to have trustworthy export control systems. In response, South Korea has now threatened to take Japan’s export restriction to the World Trade Organization, after preliminary negotiations failed. What further points to growing tensions is that on Wednesday South Korea’s Finance Minister, Hong Nam-ki, announced that Seoul was “working on comprehensive plans to reduce the country’s dependence on Japan’s materials, components and equipment industries.”
Why did Japan restrict exports?
Japan has accused South Korea of passing on one of the said materials — hydrogen fluoride — to North Korea. The shipment was cleared for exports from Japan to South Korea only. On its part, Seoul denied these allegations.
What’s the background?
Japan and South Korea share a bitter past when the latter was colonised by the former. South Korea has for long complained about wartime atrocities and inadequate apologies for colonial excesses on Japan’s part. From Japan’s perspective, too, this is fast becoming a matter of honour. What gives potency to these concerns is that fact that the fast-approaching election calendar. South Korea is scheduled to have elections next year and Japan will hold elections for its upper House later this year. That essentially means that neither government can be seen to be buckling under pressure.
Will the US intervene?
Considering that both a close US allies, it is reasonable to expect for the US to mediate. However, one of the hallmarks of the Donald Trump administration has been to use trade as a weapon of national interest. The US approach to trade relations with China being a glaring case in point. As one of the analysts said for the US it is “America First”; what happens in the rest of the world is not its problem.
What are the likely economic implications of this feud?
They cannot be good. For one, if instead of bilateral negotiations, this feud reaches WTO, it will only make it linger. That will hurt the semi-conductor business across the world because of the disruption to the global supply chain. Moreover, the timing of this dispute is poor. It has the potential to become a more widespread trade war between the two neighbours, far beyond the few goods that are in question at present.