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Japan and South Korea In Escalating Trade War

Japan and South Korea Escalating Trade War

As the Japanese trade talks falter with South Korea, there are new challenges arising that will damage tech production and raise questions about the future of this delicate relationship. Last month, Japan announced that it was ending shipments of three chemicals that are widely used in tech – flourinated polyamides, photoresists, and hydrogen fluoride. Under new regulations, Japanese companies would need to license for each chemical and this process would take up to 90 days. These specific  chemicals are needed for semiconductors, a much-needed component of most electronic devices, and given that South Korea is a semiconductor powerhouse not having this key export poses a threat to its economy. Japan has made it clear that is has security concerns and is restricting some chemicals and other items. 

Specifically, the concern is that South Korea could be passing information, on Japan, to North Korea. Japan has removed South Korea from a White List which is a list of preferred relationships for trade – those who Japan trusts. This was considered offensive to the South Koreans and in a closed door meeting on August 2, South Korean President Moon Jae-in said, “We will never again lose to Japan.” Now this trade dispute is  a losing battle for all, so there are increasing calls for a diplomatic solution.

Our Views: We feel that, after discussions with our sources, that the North Korean regime has been working closely with South Korea to rebuild a relationship, and at the same time is engineering a split between themselves and Japan. The risk here is that South Korea becomes isolated and from a diplomatic standpoint is closer to the US and in fact more dependent on the US. 

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