Japan-South Korea tensions rise over Tokyo export controls

Japan-South Korea tensions rise over Tokyo export controls

09/07/19

Chern Han Mah, Business and Policy Assistant

Simmering trade tensions between Japan and South Korea have worsened after Tokyo refused to back down from imposing tighter export controls on materials crucial to the manufacturing of semiconductors and display panels in South Korea.

The new measures, which will come into effect on 11 July, halt preferential treatment of the materials and would require exporters to seek permission for each individual shipment to South Korea – a process which could take around 90 days.

In retaliation, South Korea’s Finance Minister, Hong Nam-Ki, hinted that corresponding measures could be imposed on Japan. South Korea is also looking to the WTO as a possible avenue to advance its concerns. Nonetheless, Japan remains unfazed as it is considers expanding its export controls to even more items bound for South Korea.

By adopting this approach, Japan is following the route of the US, who under President Donald Trump has used economic tools such as tariffs to achieve political goals. Japan’s actions have been driven by an October 2018 Korean Supreme Court decision that required Japanese firms to compensate wartime forced labourers, contradicting Japan’s consistent policy of making economic decisions based on commerce and not politics. This latest decision could signal a change in approach. A popular hard-line stance against South Korea could also be a ploy for the Abe administration seeking to win a strong majority in the Upper House elections at the end of the month.

However, Peter Tasker, an analyst with the Tokyo based Arcus Research, argued in the Nikkei Asian Review that increasing tensions between South Korea and Japan are a proxy for the wider battle between China and the US.

The escalations, therefore, reflect a wider impact of the ongoing US-China trade war and the uncertain state of regional and global trade.