Japan has been warned by South Korea against escalating its dispute which would disturb trade relationships worth $80 billion and damage supply chains for electronic devices and smartphones.
Foreign Minister Kyung-wha had requested Japan to lift its trade restrictions that are currently cutting off materials required by South Korean firms for the production of computer chipsets. She also asked Tokyo to not aggravate the current problem by downgrading South Korea’s trading status. Japan is ready to remove South Korea and its companies from a white list, which contains countries with little trading restrictions.
If this happens, firms will need government licenses for selling products used for military and weapons applications to companies from South Korea. South Korea happens to be Japan’s 3rd biggest trading partner. It buys over $54 billions of Japanese goods, which includes cars, chemicals, and industrial machines, as per data from MIT.
The current standoff kicked off when Tokyo restricted chemical materials sales, used for computer chip manufacturing, to South Korean firms. This has impacted the semiconductor industry on a global scale which was previously reeling from slow demand.
SK Hynix and Samsung of Korea make 2/3rds memory chips globally, used for a variety of purposes. These are also supplied to firms like Huawei and Apple. SK Hynix said that sales would be weak for 2019’s second half, due to Japan’s export curbs. It is currently stockpiling materials, trying to beat these export control.
Companies need licenses to obtain these 3 chemical materials. Obtaining the license can take anywhere up to ninety days. Samsung stated that it was reviewing the condition and taking measures for minimizing the impact on production. If this situation continues, semiconductor production could be disrupted, affected the global IT industry.
If South Korea is removed from Japan’s white list, other industries would also suffer, stated SK Kim from Daiwa. Tensions have been rising recently due to Japan’s colonial history in Korea being brought up. A recent judgment by South Korea’s Supreme Court stated that citizens could sue Japan’s companies for usage of forced Korean laborers in WW2. Japan has vehemently denied these 2 issues to be linked.