25 Sep 19

Japan vs. Korea: a global threat

Whilst the spectators of the global economic theatre are watching China and the US quarrel about cars, IP and agriculture, a far more complex and dangerous conflict has re-emerged between Japan and Korea. Complex, because of its deeply routed and emotional cause, and dangerous, because of its potential implications on global politics and trade.

The origins of the conflict

Media like to simplify. When reporting about the tensions between Japan and Korea, we tend to read that Japan fears that South-Korea is leaking chemicals, used for military application, to North-Korea. This has led to Japan denying South-Korea’s access to fluorinated polyamides, photoresists, and hydrogen fluoride: three chemicals used for the manufacturing of semi-conductors, Korea’s core business.

Another recurrent explanation goes back to Japan’s colonial rule over Korea (1910 to 1945), during which period Korean laborers were forced to work in Japan. South-Korea’s Supreme Court ruled in 2018 that Japanese companies must compensate these victims of forced labor, although Japan has already cleared its debt through a 1965 agreement, giving South-Korea USD 500 million to ease the relationship.

The truth is that peace between the two nations has been an exception, rather than the rule. When the South-Korean President Moon mentions, during a cabinet meeting on August 2nd, that “We will never again lose to Japan”, it’s a testimonial of old griefs and emotional disagreements.

Cars, clothes, beer and travel or semi-conductors?

Videos and pictures of Korean people boycotting Japanese products were omnipresent in Asian media over the last months. Uniqlo, the popular clothing brand, Asahi, the beverage company and Toyota have been interviewed in media about the blockage’s impact on their Korean sales, but the companies’ spokespeople have replied soothingly, avoiding becoming players in a potentially global conflict.

The immediate impact of the trade war however seems to be of greater risk for South-Korea as the country is cut off essential components of its number one export product, semi-conductors. Samsung and SK Hynix provide the world with 60% of its needs for DRAM memory chips. This means that, if production can’t be shifted to other countries (e.g. Taiwan), the purchase of your next iPhone might be delayed, or its price might go up.

The real risk

But the immediate impact of a trade war between Japan and South-Korea is only a fraction of the potential damage; the geopolitical and global-economic threat touches much bigger stakes. Firstly, there’s the global economic slow-down, not in need for another conflict with worldwide impact. Japan is now squeezed between Trump’s threats of tariffs on auto imports and Korea’s boycott. South-Korea, not yet on Trump’s radar because of the US’ potential glory for the North-Korean peace talks, is already suffering from a cooling economy. A further escalation of the trade war will undeniably impact the global economy.

The bigger threat however is on a geopolitical level. Both Japan and South-Korea are Western allies and contribute to global peace because of their stance towards North-Korea and, by extension, towards China and Russia. The US have not invested much time and effort managing the trade war and South-Korea is not hiding its ambitions of a reunification with North-Korea, which won’t happen without interference from China. If the current conflict is not taken care of diligently, we should all prepare for a global meltdown.

Authored by: Yves Helven