Japan-South Korea Trade War: What is it Really About and Why is it Happening Right Now?
Key Event
On July 1, 2019, Japan’s Ministry of Economy, Trade and Industry (METI) issued an update on Japan’s licensing policies and procedures for implementing its export control and regulation, which included 1) Removal of the Republic of Korea (ROK) from “White Countries” and 2) Tighting restrictions on individual export licenses to ROK for high-tech materials, such as Fluorinated polyimide, Resist, and Hydrogen Fluoride — products crucial to producing semiconductors. METI gave the reason that “the Government of Japan cannot help but state that the Japan-ROK relationship of trust including in the field of export control and regulation has been significantly undermined.” This vague and diplomatic reasoning says little about the real causes behind Japan’s drastic change in policy.
Timeline
The METI update marks the start of a long trade war between the two countries. In the next couple of months, Japan and Korea took a series of tit-for-tat moves as conflict escalated:
On July 4, Japan’s changes to its approach to trade with ROK went into effect;
On July 8, South Korean President Moon Jae-in warned that Japan’s new export restrictions could threaten the global supply network, causing concern not only for South Korea, but for the whole world;
On August 2, Japan announced its decision to drop ROK as a preferable trading partner (or the “white list”);
On August 12, ROK’s Trade Ministry announced that it would remove Japan from its list of preferred trade partners as well;
On August 22, ROK terminated its intelligence cooperation with Japan;
On August 28, Japan’s decision to expand restrictions on exports of high-tech materials took effect;
On August 29, President Abe of Japan decries ROK’s decision to terminate intelligence cooperation for undermining peace and security in East Asia.
What started Everything?
What started this never ending trade war? This question takes us back to October of last year, when South Korea’s Supreme Court ruled that two Japanese conglomerates, Nippon Steel and Sumitomo Metal Corp., should pay more than $87,000 in compensation to four South Korean forced laborers during the Japanese colonialism period. Japan, who argued that the case of forced labor has long been settled under a 1965 treaty between the two countries, threatened to bring the case to the International Court of Justice without consent from the South Korean government. South Korea, however, reaffirmed its opinion through another similar decision a month late, ordering Mitsubishi Heavy Industries of Japan to pay five women $89,000 to $133,000 for compensation of forced labor. Frustrated at the South Korean government’s stubbornness on the issue, Japan decided to put pressure on the Moon Administration by restricting exports of products crucial to South Korea’s huge semiconductor industry, only to find South Korea ready to defend its decisions by all cost.
But...What is it really About?
For someone not familiar with Japan-South Korea relations, you might find yourself asking: are these Supreme Court decisions really worth ruining the most important trade relation between the two countries and putting each other’s national security at risk? At the end of the day, Korea’s top industries such as smartphones and automobiles depend on Japan’s exports, and Japan also finds Korea to be one of its major trading partners. However, beyond the stability of the national economy and the protection of national security, bigger issues are lurking under the water, waiting for a solution.
Historical Grievance
The issue of forced labor is only a part of Korea’s historical trauma imposed by the Japanese colonial government from 1910 to 1945. During the later period of its occupation in Korea, Japan entered what it called “the Fifteen-year War,” starting with the Sino-Japanese war in 1931, and later the Pacific War in 1941.To fill the shortage of Japan’s labor force during wartime, large numbers of Koreans were drafted by the colonial government to work under Japanese companies, and “recruitment grew progressively coercive in character as the war situation deteriorated”; by 1944, 280,000 Koreans were forced to migrate to Japan. Towards the end of the war and the approach of Japan’s defeat, control over the Korean laborers in Japan slowly deteriorated, and an estimated 822,000 Koreans fled Japan in 1945. The thirty-five year colonial period in Korea ended in August of 1945, following Japan’s surrender to the Allied forces, only for Korea to find itself becoming the battlefield of the two hegemons — the U.S. and the Soviet Union — for the next decade. Two decades after the end of Japanese colonialism, Japan and Korea finally took their first step towards normalization, which resulted in the 1965 Treaty on Basic Relations.
But the issue of forced labor is only one among many humanitarians accusations against the Japanese colonial government. Another one, the issue of comfort women — Korean women who worked as sexual slaves for Japan’s imperial troops during WWII — remains on the top of contentious historical issues that continue to divide the two nations. While the South Korean victims demand that the government of Japan formally apologize and compensate the victims, Japan claims that the issue has been settled under the same 1965 treaty. In 2015, South Korea, under the former president, Park Geun-hye, who was later impeached, reached a bilateral agreement with Japan that was said to “finally and irreversibly” settle the issue of comfort women by establishing a Japanese-funded foundation in South Korea to compensate victims. The agreement proved unpopular among South Koreans, as many regarded it as failing to reflect the opinions of the surviving victims. In the midst of this trade war, the Moon administration proceeded to dissolve the foundation, bringing the resolution of this historical problem back to square one, while further deteriorating the trust between Tokyo and Seoul.
Why Now?
The historical disputes between Japan and Korea have been going on for over half a century, but despite the animosity, trade relations between the two countries had remained relatively smooth. So why did trade relation sour all of a sudden, particularly right now?
The Surviving Victims
One reason is that the surviving victims of forced labor and sexual slavery are running out of time — in 2019, the youngest among them are in their nineties. As the lawyers of the forced labor’s compensation cases from last year stated, “for plaintiffs who are over 90 years old, the process set by the law can no longer be delayed.” The victims and their supporters are therefore giving their all to defend their last chance for justice.
The Presidents
Another hypothesis has to do with the people in power — both Abe and Moon are approaching a crucial time in their presidential terms. President Moon Jae-in’s approval rating reached a new low at the end of last year since he resumed office in 2017, partly due to his efforts to reform the judicial system, his lackluster domestic policy, and his failure to address Korea’s slowing economic development. When I was in Seoul over the winter, large numbers of protestors from the opposing party were marching over Gwang Hwang-mun, the political center of Seoul, calling for Moon’s removal from office. A win over this particularly emotionally sensitive issue for the Korean public, therefore, becomes crucial for Moon to retain his popularity as he enters the latter half of his presidential term. During an emergency cabinet meeting on August 2, President Moon vowed, “we will never again lose to Japan.” All eyes are on Moon to potentially become the first president in South Korean history to finish his term without major downfalls.
Prime Minister Shinzo Abe, on the other hand, just surpassed his great uncle to become the longest serving prime minister in Japan this November. As his presidential term is coming to an end, he is looking to leave his mark on Japanese political history. Historical disputes with Korea and economic stagnation, however, are standing in his way to “make Japan great again.”
Why Should Washington Care?
Disrupting Global Economy
The most obvious result of this trade-war is the disruption of the already-slowing global economy. South Korean tech companies such as Samsung and SK Hynix provide 60 percent of the world’s DRAM memory chips, a crucial intermediate good for digital electronics, including smartphones and laptops. Licensing the export of semiconductor materials from Japan to Korea, therefore, will slow down the global tech supply chain, affecting major U.S. tech companies from Apple to Dell. The intricate supply chain built between Japan and South Korea, according to chief economist Taimur Baig at DBS Group Research, are “so hard to redo.”
Undermining Security in East Asia
According to Senior Director Troy Stangorone from the Korea Economic Institute, what is more concerning about the trade war is the normalization of using national security to justify trade policies, which we have already seen played out in 2017, when China imposed trade restrictions to coerce South Korea to reverse its decision on deploying THAAD. What was seen as an unusual move of China could be the normalized future of trade relations.
As its two most crucial allies in East Asia, Washington also depends on its trilateral relationship with South Korea and Japan for security issues concerning North Korea and China. This on-going trade war that has spilled over into the issue of national security, however, is deteriorating the fragile trust between the two historical foes, threatening the future of trilateral agreements between Washington, Seoul, and Tokyo, as well as possibly threatening the balance of power in East Asia.
Implication for China
Another interesting side-effect of the Japan-South Korea trade war concerns China. In an email exchange between Troy Stangarone and I, he points out that the U.S. has put a strong emphasis on the development of a non-Huawei 5G network, and as the world's fourth largest network equipment producer and a growing player in the production of 5G network equipment, South Korean brand Samsung has been the best bet for the U.S. The Japan-South Korea trade war, however, “could undermine Samsung’s ability to compete as an alternative to Huawei,” says Stangarone.
Stangarone also points out that Beijing has put significant efforts into becoming the leading semiconductor producer in the world, as a part of its Made in China 2025 plan. Though at the moment Chinese firms are still behind in the semiconductor industry, the negative impact of the trade war on the South Korean producers could “make it easier for Chinese firms to catch up technologically,” according to Stangarone. This could cause a headache for Washington, who deeply distrusts China’s tech industry and fears its domination.
What Should We Expect Moving Forward?
The Japan-South Korea trade war is still ongoing; the boycott of Japanese products in Korea is still taking place on a daily basis, and no significant progress has been made on this issue. Nonetheless, steps are being made to amend the bilateral relationship. On October 24th, Abe met with Lee Nak-yon, Prime Minister of South Korea, during the imperial enthronement ceremony in Tokyo. Though the two leaders agreed to cooperate on North Korea security issues despite the current fragid bilateral relation, it is unclear if any substantial agreement was made on the trade war. While Abe repeated his hope that South Korea would “act in accordance with the promises made between” the two countries, Lee responded that “South Korea has also respected and complied with the 1965 Treaty on Basic Relations and Claims, and will continue to do so.”
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