South Korea’s leader Moon Jae-in likes to be known as the Dark King because of his resemblance to the anime character of the same name. But that’s probably the limit to how far he wants to be seen as embracing Japanese culture. Since he became president in 2017, Japan and South Korea’s troubled relations have taken a turn for the worse. But no one expected Tokyo to take a steer from US leader Donald Trump’s playbook and launch a trade war that might cripple the Korean electronics industry.
At the beginning of July the Japanese did just that: hindering access to three key chemicals used to make memory chips. Earlier today the Japanese cabinet removed South Korea from a preferential “white list” of trusted trade partners, meaning that Japanese companies will need approvals to export strategic materials to their South Korean customers.
Moon has been forced to cancel his summer holiday to deal with the escalating crisis.
Japan is incensed that a painstakingly renegotiated compensation agreement for victims of the Second World War, including comfort women and forced labourers, has been reopened. Over the past year, South Korean courts have made new demands that Japanese companies such as Nippon Steel and Mitsubishi Heavy Industries make individual payouts (the Japanese government believes Moon appointed the judges responsible for the order).
South Korea hasn’t found other countries willing to intercede on its behalf over the trade war (an appeal to the WTO fell on deaf ears) and Trump has also been reluctant to intervene, tweeting that, “it’s like a full time job getting involved between Japan and South Korea”.
Some of his compatriots think that this isn’t good enough, especially in light of the trade and tech tensions between Washington and Beijing. Discord between Tokyo and Seoul isn’t only another complication in a gloomy outlook for global trade. It’s also an unwanted distraction from a more pressing theme at the White House: winning the trade war against China.
“The US needs to remind South Korea and Japan who their real enemies are,” the Washington Post warned.
One concern is that Japan’s decision to choke off its supply of key chemicals will force South Korea’s tech firms to look elsewhere, giving the Chinese a chance at establishing more of a foothold in the market. They have traditionally supplied more of the low- and mid-end materials for the semiconductor sector, but Samsung Electronics, the biggest producer of memory chips, is already said to be testing Chinese-made substitutes for Japanese chemicals used in the chip-etching process, reports the Financial Times.
Another fear is that the Japanese embargo will disrupt the wider supply chain, giving China’s chipmakers a chance to win a bigger share of business. Samsung and SK Hynix make nearly two thirds of the world’s memory chips, which are used in everything from smartphones to connected cars. In the event that the embargo on chemicals means that the Koreans can’t maintain deliveries at the same rate, China’s semiconductor firms will want to take advantage. Admittedly, they make more of the lower-performance chips than their Asian neighbours.
However, simply by exploring how to engage with potential new customers, the Chinese will make up ground in their bid to build a more sophisticated skillset in the sector.
The quest to catch up in semiconductors is relentless – as indicated by another Rmb200 billion ($29 billion) in financing for the state-backed China National Integrated Circuit Industry Investment Fund announced at the end of July.
The funds will go towards improvements in chip design, advanced materials and equipment, the Chinese media said.
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