S. Korea-Japan Trade War Unlikely
Tensions are escalating between South Korea and Japan over the ongoing fire control radar issue and the recent judgment of the former’s supreme court on forced wartime labor. Under the circumstances, South Korean enterprises are keeping a close watch on the situation.
“The Japanese government may block hydrogen fluoride supply from Japan to South Korea,” an industry expert said, adding, “If so, South Korean companies will have to seek alternative suppliers in the United States and Europe, which will lead to an increase in logistics costs.” He continued to say, “Even so, Japanese companies are on edge as well with South Korean semiconductor manufacturers predicted to reduce their equipment investment in line with memory chip market conditions, and the Japanese government’s unwarranted export ban would backfire by causing a backlash from Japanese enterprises and WTO litigation.”
South Korea’s exports to and imports from Japan totaled US$30.7 billion and US$54.6 billion in 2018, respectively. Japan accounts for 10.2 percent of South Korea’s total imports behind China (19.9 percent) and the United States (11 percent). South Korean enterprises are highly dependent upon Japan for components, materials and equipment for manufacturing of semiconductors and other products. Semiconductor manufacturing equipment represents the largest portion, 11.3 percent, of South Korea’s imports from Japan. In addition, semiconductor products represent 8.2 percent.
Experts point out that the current situation is unlikely to lead to a trade war. “With industrial demands falling and a trade war already going on between the United States and China, the Japanese government cannot but hesitate about blocking exports from non-large component and material suppliers,” an official at the Korea International Trade Association explained, continuing, “Japan is unlikely to let things get worse in the presence of practical considerations such as WTO rules and North Korea issues.”