Experts from the US, Japan and Southeast Asia voiced concerns over the escalating trade dispute between South Korea and Japan, saying Tokyo’s restrictive measures aimed at Korean chipmakers would not only have “serious consequences” to the already depressed information technology industry, but also impede the flow of world trade and the principle of market liberalization.

Japan’s toughened export control measures on three materials crucial for chip fabrication and its plan of delisting South Korea from a group of privileged trade partners clearly shows the quality of the current bilateral relationship and how the two, despite their deep economic interdependence, have lacked communication and been overshadowed by unresolved political and historic issues, they said.

On Korean chipmakers facing unprecedented risks that go beyond their corporate capacities, they said the firms might have to live with the new measures, as it is seen as not easy for Tokyo to reverse its decision any time soon.

Speculations both as to the political and industrial contexts also exist that Japan’s restrictive measures may have been made to keep its own chip industry afloat, namely for Toshiba, which is now backed by a majority group of US investors, and also to put a dent into the decadeslong trilateral alliance among Seoul, Washington and Tokyo and reestablish Japan’s standing in the geopolitical security context.

“The ongoing trade dispute between Japan and South Korea will have serious consequences to the global semiconductor industry if a resolution cannot be identified in the near term,” said Len Jelinek, executive director of semiconductor research at IHS Markit.

“Potentially all electronic devices and systems that employ DRAM and/or NAND Flash could face supply allocation challenges. If supply constraints arise, the price of memory components could significantly increase due to the inability of the other memory suppliers to meet global demand,” he said, noting that SK hynix and Samsung Electronics last year supplied 61 percent of the memory components that are used in a variety of electronics systems.

“End products including servers, mobile handsets, PCs and a variety of consumer electronics would be impacted, and, in some cases, production of certain end products could cease.”

Prospects of the two resolving the issues in the near term remain dim due to both leaders of the countries facing their own political pressures -- with Prime Minister Shinzo Abe awaiting an upcoming election and President Moon Jae-in under the constraints of public antagonism here against Japan’s wartime crimes. Scott Seaman, director of Eurasia Group’s Asia division, said in a co-authored report that “Seoul and South Korean firms may well decide that it is better simply to learn to live with or work around Japan’s new export rules rather than battling to make Japan rescind them.”

Not only for Korea’s chip industry, the largest sector driving its export growth, but Japan’s new measures will also send shockwaves to other IT giants and to other parts of the world.

“Huawei, with its access to US semiconductors at least partially restricted could be particularly vulnerable to any disruptions in memory supplies from Samsung,” Seaman wrote.

“Japan’s uses of technology export controls in the context of a regional diplomatic row underscores that geopolitical risks around technology supply chains are broadening beyond US-China tension.”

As in the case of the China-US trade war centering on Huawei, this case seems to show that global businesses are under serious threats from governments, in scenarios where governments are essentially holding companies hostage to diplomatic disputes. This phenomenon of businesses increasingly getting caught in the middle of diplomatic power struggles is becoming dangerous.

“The use of trade sanctions as a negotiating lever in government-to-government negotiations has escalated over the past two years, with negative repercussions for world trade growth,” said Rajiv Biswas, Asian-Pacific regional chief economist for IHS Markit. “Exports are a key growth engine for many Asian economies, and the shockwaves from increased trade sanctions are having a negative impact on many exporting companies across the APAC (Asian-Pacific) region.”

Also it clearly backtracks from the international agreement just forged last month during the Osaka G-20 Summit Leaders Communique that called for a “free, fair, non-discriminatory and transparent” trade and investment environment.

“Trade disputes and trade sanctions are throwing sand in the wheels of world trade flows, eroding the progress made by decades of trade liberalization under the GATT (General Agreement on Tariffs and Trade) and WTO (World Trade Organization),” said Biswas. “The trade dispute between Japan and South Korea is also likely to damage progress of negotiations between China, Japan and South Korea towards establishing a new trilateral Free Trade Agreement.”

Pointing out the timing of the export curbs being implemented, Peter Chan, a semiconductor analyst at CSG-CIMB, said Tokyo’s motive could have been carried out in disguise of political cause.

A recent power outage at a Toshiba plant in Japan, which led to product suspension of some of the chipmaker’s fabrications and a certain amount of material scrap, has subsequently triggered a NAND price hike, Chan said. Toshiba’s heavyweight stakeholders include some from the United States, including Bain Capital and Western Digital.

“Samsung, backed by its massive cash and superior profit structure, can maintain its leadership position even if it decides to bleed a bit as an expense to cripple Toshiba (by dumping NAND into the market). Japan, and Toshiba’s US investors, probably do not wish to see that,” he said, adding that Tokyo’s measures may indirectly result in benefits for its only memory player left, Toshiba.

Like it or not, the deteriorating diplomatic relationship between Seoul and Tokyo is where their economic ties are also headed -- for the worse.

According to local reports, Seoul’s top security officials have added weight on speculations that Tokyo might be considering reestablishing its position away from trilateral ties among Korea, Japan and the US in the geopolitical security context of the Northeast Asia region.

Despite the diplomatic relations between South Korea, Japan and the US having been significant in the volatile geopolitics surrounding North Korea, Seoul and Tokyo have left their relationship to falter, largely driven by historical and political interests.

“The current situation epitomizes the state of bilateral relations between Japan and South Korea, where both governments have not only politicized the myriad problems and exploited nationalism, but failed to properly communicate and render a clear vision for constructive and cooperative relations,” said Ryo Hinata-Yamaguchi, a visiting professor at Pusan National University.

“Economically, Japan and South Korea are closely linked and interdependent, as well as being an important piece of the global supply chain. Thus, it is vital for the two governments to work together and revitalize the strategically critical ties.”

By Cho Chung-un(christory@heraldcorp.com)



Staff reporter Jung Min-kyung contributed to this article. -- Ed.