South Korea and Japan are embroiled in a bitter trade war that could have consequences for a global economy that is already suffering from another trade war between the US and China.
Last month, Japan announced it would tighten control over three chemicals — fluorinated polyamides, photoresists, and hydrogen fluoride — that are crucial to producing semiconductors in Korea. Under new regulations, Japanese companies would need a license for each chemical to import them to South Korea, and the process could take up to 90 days.
Semiconductors, a key material installed in most electronic devices, have long been Korea’s top export item, and a delay in their productions could pose a significant threat to its economy.
Japan claimed it was setting such restrictions because it believed South Korea was leaking sensitive information to North Korea, although they did not provide details. After South Korea vehemently denied the accusations, Japan slapped down another trade restriction: removing South Korea from its “white list,” an index of trusted trade partners. This would lead to even more delays in exports of items like auto parts and household electronics to South Korea.
Needless to say, South Koreans are furious at Japan. And they’re displaying their anger by boycotting Japanese beer and clothing brands (Uniqlo is very popular in the country), as well as travel to the country.
The South Korean government is looking into removing Japan’s preferred trade partner status and potentially creating a new low-tier category just to isolate the country from future benefits, a downturn in a relationship that is already tainted by a painful history of Japanese colonialism.
That bitterness was reflected in South Korean President Moon Jae-in’s speech during an emergency cabinet meeting August 2 when addressing the trade restrictions: “We will never again lose to Japan.”
“As we have already warned, if Japan intentionally strikes at our economy, Japan itself will also have to bear significant damage,” he continued.
Despite both countries being close allies of the US, the Trump administration has done little to alleviate the tension. And the few attempts that have been made — Secretary of State Mike Pompeo tried to facilitate a reconciliation last week — have had little success.
David Kang, director of the Korean Studies Institute at the University of Southern California, says the Trump administration has failed to establish a sense of alliance in the region. Part of this is the attention on all the other crises the US is currently embroiled in, and part is because President Donald Trump simply does not care enough.
This trade dispute is a losing battle for everyone involved. South Korea is one of Japan’s most active trade partners, and the instability in their relationship will cause both economic and national security problems.
Like many countries that engage in trade wars, though, they might not care — for now, at least — because of the deeply rooted emotions the conflict stems from.
The trade war is more about historic grievances than national security
When Japan first announced its restrictions on key chemicals for semiconductor production, it made vague claims about protecting Japan’s national security.
At the time, Japanese officials said some South Korean companies were inadequately managing the chemicals, implying that some were being leaked to North Korea for military applications. It did not indicate which companies were guilty of doing so nor were any specific examples provided.
And Moon has said himself that the issue at hand is more emotional and goes back decades ago to Japan’s colonization of South Korea.
When South Korea was subject to Japan’s colonial rule from 1910 to 1945, laborers from South Korea were forced to work in Japan.
Last year, South Korea’s Supreme Court ruled that Japanese companies must compensate those victims of forced labor. Japan pushed back against the decision, saying that they had already paid restitution through a 1965 agreement in which they gave Seoul $500 million in aid to normalize their relationship.
“What we have here with Japan is a deep, deep emotional — because that is literally what it is for both sides — debate about whose side of the story gets told about World War II, the first half of the 20th century,” Kang says.
“Was [forced labor] something that Japan just reluctantly had to do and did for the betterment of all? Or is this a massive drive throughout all of East Asia by an imperial power that was brutal?”
Another key question: Why is Japan escalating a fight now?
Japanese Prime Minister Abe Shinzo’s career is inching closer to the end (in November, he will officially become the longest-serving prime minister in Japanese history), and he’s looking to make his mark on history.
Abe wants to “make Japan great again,” Kang says, and for Abe, concerns about past forced labor keep getting in the way of that.
The Korea-Japan trade war could harm the already-slowing global economy, but its effects could run much deeper
The most obvious concern is the threat a trade war poses to the global tech supply chain by delaying exports to Korea, says senior director of the Korea Economic Institute Troy Stangarone.
That’s especially because South Korean companies Samsung and SK Hynix provide 60 percent of the world’s DRAM memory chips, which are used in many electronics we use every day. A shortage could affect everything from Apple iPhones to Dell laptops and potentially slow down an already cooling global economy.
But Stangarone told me he’s even more concerned about how the trade war is helping to normalize the use of national security to justify trade policy. The US already set an example by citing national security concerns to threaten tariffs on auto imports from Japan and the EU unless they negotiated trade deals with the US.
While the tension right now is between two US allies, the weaponization of trade could become a larger threat for the US if its adversaries use trade to target US allies, Stangarone says.
“Do you defend your ally and engage in economic warfare... with a third country?” he said. “Or do you take and risk seeing your security objectives undermined as your allies are basically economically coerced by your adversaries?”
It’s already happened before: When Korea decided to deploy THAAD, an American anti-ballistic missile defense system, to combat threats from North Korea in 2017, China saw it as a threat to their military operations and tried to economically coerce South Korea to reverse its decision.
China lashed out at Korea by promoting government-sanctioned trade boycotts, blocking online trade of South Korean products, and shutting down South Korean retail facilities. But what seemed like an unfair economic attack from China at the time may now become the new normal.
The trade war is also impacting the strategic relationship the US, South Korea, and Japan need to address the more dire threats in the region: North Korea and China, says Matt Goodman, senior adviser for Asian economics at the Center for Strategic and International Studies.
In the past two weeks, North Korea carried out four missile tests, demonstrating that it has the technology to hit Seoul if it wants to. China also needs to be monitored, says Goodman, to ensure that it “plays by the rules in international affairs.”
“We should be working with laser-like focus, rather than arguing with each other,” Goodman says.
South Korea and Japan could potentially bond over these national security threats in the near future to put an end to their trade dispute, Goodman told me. It’s going to take more than a few meetings, however, to smooth over decades-long historic grievances.