Just Another Trade War? Tensions Drive Wedge Between Japan and South Korea

The trade dispute between Seoul and Tokyo is starting to resemble a full-blown trade war. In response to the decision of the Shinzo Abe government to impose restrictions on the export of electronic s to South Korea and exclude it from the 27 countries which enjoy preferential access to the Japanese market, on August 14 Seoul excluded Japan from its own list of 27 countries that are granted most favoured nation status in bilateral trade.

Observing the situation from the outside, it is possible to notice that the communication techniques chosen by the parties resemble those of the US administration: the conflict was escalated to make the other side to react and social networks were used to transmit information and attract attention. South Korea has been particularly active in this regard, using all available means, ranging from official protests lodged with the WTO to boycott campaigns targeting Japanese goods, which have been organised by consumers and the trade unions of major retailers.

In this dispute, Seoul has taken the position of an “undeservedly injured party”, which is forced to retaliate but remains open to dialogue, as stated in the appeal of the Korean Ministry of Industry and Trade. There is a certain amount of truth in the fact that Seoul was forced to give an answer, since formally Tokyo was the first to introduce restrictive measures, citing national security considerations as the motivation for its decision. South Korea, on the other hand, has linked these actions with Seoul’s position on reparations for the consequences of the colonial occupation of the Korean Peninsula during the first half of the 20th century. Over the past several years, South Korea has increasingly insisted that Tokyo must apologise and provide compensatory reparations for Japan’s exploitation and violation of the rights of Korean women, especially those who were assigned to work in military units during World War Two. Seoul has launched a large-scale international campaign, appealing to international organisations and funding historical investigations and studies dealing with this issue. It has also directly called upon the Korean diasporas in Japan and California to inform the public. Thus, the motives driving the trade dispute extend far beyond the exchange of goods and services.

Japanese-South Korean Quarrel
Andrei Lankov
In the middle of July another crisis in South Korean-Japanese relations broke out, leaving the local press as of that moment no other choice but to continually focus on that topic. As is often the case, the crisis itself is not so conspicuous outside of the country.

South Korea’s attempts to make the trade dispute exclusively a commercial matter have not yet been crowned with success. The country’s complaint to the WTO was considered belatedly due to the extensive work agenda of the organisation, which is itself suffering through difficult times. In the final wording of the WTO’s advice on the issue, it stated that this trade dispute stems directly from bilateral relations between South Korea and Japan. Many Asian countries are cautious about taking sides, because they are not interested in spoiling relations with either country, as both are seen as important investors. Japanese business is successfully expanding in Asia, investing in the development of industries, infrastructure and services. Against the background of continuing risks and uncertainties in the global economy, it’s unlikely that any country will openly support of Seoul. 

However, for Japan, the consequences of the confrontation could be very tangible, especially if we take into account trade activity with South Korea and the role of South Korean tourism in the economy of some Japanese prefectures. In 2018, South Korean imports from Japan exceeded $54 billion. Each month, South Korea imports goods from Japan worth more than $4 billion. However, since the beginning of the conflict in July of this year, these numbers have declined. According to South Korean media, immediately after the introduction of restrictions, the consumers launched a campaign to boycott Japanese goods. Tourism at four popular destinations – Osaka, Tokyo, Fukuoka and Okinawa, decreased by 20-30%. The site www.nonojapan.com appeared on the Internet, which publishes a list of boycotted goods, and Koreans have introduced the hashtags #nomoreJapan and #boycottJapan on Twitter. The beer industry has suffered the most. Asahi is one of the most popular beer brands in Seoul, but its sales have fallen by 98% over the past month. As a result, brewers from Belgium and the USA were able to take first and second place. Drops in South Korean sales have also struck such popular Japanese brands as UNIQLO (a 70% drop in sales in Korea), Muji (a 58% drop in sales), and carmakers Honda and Lexus. In fact, the perception of Japanese goods among South Korean consumers has regressed to what it was in the early 90s, when it was considered unpatriotic to drive a Japanese car and no one even considered eating Japanese soba noodles and washing them down with Asahi. Even if a formal resolution of the disagreement is clinched at the interstate level, it will not be easy to overcome such psychological barriers among consumers. It will take more than a year. 

The South Korean-Japanese trade dispute erupted amid the fact, that according to the results of the first half of the year, Samsung again took first plane in the supply of key electronic components. The Korean giant is a top exporter of several components. However, both South Korean analysts and company representatives have noted that the outlook for the second half of the year remains vague due to the trade war between the United States and China and the restrictions imposed by Tokyo.

The restrictions imposed by Tokyo will push Seoul to further increase technological self-reliance, and attention will be paid to those sectors which continue to be reliant upon Japan. The government has already announced full support for companies that have suffered from the restrictions. State funding for scientific research will increase, and Seoul plans to allocate more than $200 million to introduce high-tech components to replace the Japanese ones. The South Korean companies will be also more inclined to consider mergers and acquisitions with American and European companies in order to assimilate the necessary developments. We should also expect a strengthening of technological cooperation. Here Russia could reap dividends. South Korean electronics manufacturers have always shown a keen interest in Russian scientists and engineers. Against the backdrop of the dispute, this aspect of ​​Russian-South Korean cooperation could be strengthened through a technological partnership.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.