By Soo Young Yun
Fraught relations between South Korea and Japan have taken a toll on economic ties in the two countries’ most recent trade spat.
Japan announced in the first week of July this year that it was removing South Korea from a 27-country “white list,” tightening curbs on exports of three materials (hydrogen fluoride gas, fluorinated polyimide, and photoresists) essential for major semiconductor manufacturers such as Samsung Electronics and SK Hynix. Japan now requires Japanese companies to receive case-by-case approvals in order to export these materials to South Korea.
Japan’s rationale behind this decision is that South Korea does not properly oversee the end use of these chemicals to make sure that they are not being misused, insinuating that North Korea has been allowed access to these materials. Therefore by pointing to South Korea’s lax export controls, Japan has resorted to stripping South Korea of its privilege of preferential trade treatment for export licensing.
That was their public rationale—but what is this trade war really about?
The trade feud, unsurprisingly, stems from historical roots and again reminds us of the lingering traces of WWII and Japan’s colonial legacy. In October 2018, the South Korean Supreme Court ordered Japanese companies such as Nippon Steel and Mitsubishi Heavy Industries to compensate former wartime laborers. The compensations range from $70,000 to $90,000 for around every two dozen wartime laborers, which amounts to a considerable sum of money considering there were an estimated 700,000 laborers forced to work for the Japanese Empire during WWII. South Korean courts have threatened to freeze local assets of these Japanese companies if they do not comply. And to the frustration of Japan, the Moon Jae-in administration has argued that they have no authority to reverse the ruling of the national judiciary.
In response to the court decision, Japan has pointed to the 1965 agreement made with dictatorial President Park Chung-hee, where the Japanese government offered economic aid amounting to $800 million. They argue that this treaty effectively addressed all war debts and grievances from WWII. South Koreans, however, insist that the government at the time most likely had no choice but to consent to the agreement. Furthermore, it was later discovered in a 2005 investigation that President Park Chung-hee did not, in fact, use the money to compensate war victims as Japan had suggested, but instead invested it as capital to spur the country’s economic development. The treaty, being vaguely worded, also does not frame the economic aid as atonement for Japan’s war crimes and is seen as more of an amicable gesture to maintain harmonious relations. In pursuing a more revisionist diplomacy, Korean President Moon Jae-in has gone further to challenge the legitimacy of previous agreements made between Japan and the impeached former president, Park Geun-hye.
In response, Japan has chosen economic retaliation, knowing that South Korean electronic companies rely heavily on Japanese exports for semiconductor raw materials. According to the Korean International Trade Association, Japan supplies around 90% of the fluorinated polymides, 90% of photoresists, and 40% of hydrogen fluoride used by South Korean companies. Companies have stated they have a few months worth of stockpiles of materials that will lessen the effect of the export curbs, and the South Korean government has also announced its plans to lessen the Korean economy’s dependence on Japan by investing 1 trillion won annually to support the local production of the restricted materials. Nevertheless, Japan’s restrictions still threaten crucial Korean sectors that rely on Japan for key chemicals.
Furthermore, it is unlikely that South Korea will receive outside help in its trade war. Russia has offered to help export hydrogen fluoride supplies, but it will be difficult for South Korean companies to rapidly shift import sources after being accustomed to using Japanese exports for so long. More importantly, the U.S. has been hesitant to take sides in this escalating trade feud, with President Trump offering to mediate the dispute if necessary.
While initially the South Korean government did not directly take retaliatory action (not until recently in September with the removal of Japan from its list of trusted trading partners), Koreans have taken matters into their own hands and responded by boycotting Japanese products from beer to cars to cosmetics to stationery. On social media, Koreans have targeted companies such as Uniqlo, Toyota, Panasonic, Descent, and Honda, trending the hashtag #boycottjapan on Instagram and other social media platforms.
Many convenience stores have also cleared Japanese products off the shelves, with Japanese beer shipments to South Korea dropping by 99.9% from September of last year. Cancellations of travel reservations and trips to Japan have also been on the rise, with Korean Air, Korea’s top carrier, suspending flights to Japan and plane ticket prices falling to as low as under $10. The trade war has gotten to the point where South Korean gas stations have refused to refuel Japanese cars, which arguably could hurt Korean car owners rather than Japanese car companies.
Perhaps the boycott will subside in due time, and Japan and South Korea may even lift their respective trade restrictions and the two countries may return to tolerable tensions. However, such problems will continue to resurface due to haphazard and rushed reconciliation agreements over past wrongdoings between the two countries. So much of Japan and South Korea’s political conflicts arise from historical roots, and while the currently ongoing trade feud is the biggest spat in a while, it will certainly not be the last.