On July 1, the Japanese government unexpectedly announced that it would begin removing South Korea from the “White Countries” list of its Export Trade Control Order, and would require an individual license for exports of three high-tech materials used in smartphone displays and chips to South Korea, starting from July 4.
This announcement is somewhat astonishing and ironic, given that it came just two days after Japan hosted the G20 Osaka summit, which proclaimed to “strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment and to keep our markets open.”
Obviously, this free trade rhetoric was mere lip service and placed no constraints on the latest Japan-South Korea trade dispute.
Japan’s official explanation for imposing stringent export procedures over certain controlled items and technologies was that the “Japan-ROK [Republic of Korea] relationship of trust including in the field of export control and regulation has been significantly undermined.”
Tokyo claims it “found that certain sensitive items have been exported to the ROK with inadequate management by companies.”
Specifically, one Japanese media firm revealed that in the past four years, there have been 156 cases of illegal exports of strategic goods from South Korea.
To safeguard national security, Tokyo had to tighten export curbs.
However, the South Korean government holds a different view, accusing Tokyo’s move of being politically motivated and a retaliatory act against a South Korean court rulings that ordered Japanese companies to compensate South Koreans for forced labor during World War II.
Regardless of what motivations might be behind Japan’s decision, what seems more pivotal is that Tokyo’s sophisticated export measures are likely to be fatal to South Korea’s high-tech industries, as the latter has been enormously dependent on Japan’s supply of strategic materials.
South Korea’s national champions, such as Samsung Electronics, SK Hynix and LG Display, are expected to suffer severely if Japan actually implements the measures.
Despite that, the essence of the dispute might stem from an ingrained Japan-South Korea rivalry and the calculation of individual domestic politics. This trade quarrel should be viewed as part of a worldwide proliferation of trade conflict, attributed to the recent surge in global protectionism.
Since US President Donald Trump formally launched a trade dispute against China in 2017, the battlefields of interstate trade disputes have multiplied and spread rapidly over many regions.
For example, in addition to Trump recently slapping the “unfair” trade practice label on India, Vietnam, Mexico and the EU, the European Commission has targeted US firms and has imposed unprecedented penalties on several US high-tech giants, such as Google, Facebook, Intel and Qualcomm, over breaches of the EU’s antitrust and competition rules.
These cases not only suggest the growing proliferation of trade disputes, but also implicitly encourage more countries to adopt similar protectionist measures against trading partners.
The Japan-South Korea friction should be looked at in the context of the changing dynamics in the global trade environment, rather than a quarrel between two states.
Furthermore, the core policy instrument of this trade clash, “export controls,” is actually an extended means of trade protectionism, one that has been used several times by Washington against China’s national champions, such as ZTE in 2017 and Huawei in 2019.
Inspired by Washington’s trade tactics, export controls have become Tokyo’s most effective trade weapon against Seoul.
More noticeably, the economic statecraft of trade protectionism utilized by countries has expanded and diversified in the past few years, from imposing high tariffs to tightening export controls and outright bans.
This development implies that an increasing number of countries are willing to impose sophisticated means to hinder trade at the expense of their trading partners.
Additionally, the Japan-South Korea dispute highlights the vulnerability of trade interdependence. Although trade interdependence facilitates peace between countries — as liberals contend, given the costly economic consequences of conflict — it also creates weakness for those countries that are more asymmetrically dependent on trading partners.
During times of peace and harmony, there is no doubt that trade interdependence fosters mutual prosperity by maximizing economic efficiency and improving resource allocation. Nevertheless, in times of conflict and hostility, trade interdependence is an Achilles’ heel.
The risks and consequences of disrupting trade interdependence are particularly huge and costly nowadays, given that the connectivity of global supply chains means that virtually no country can boast complete industrial independence.
The cases of ZTE and Huawei have vividly demonstrated how dexterous and shrewd Washington is in weaponizing China’s trade dependence on the US. By successfully exploiting the vulnerability of Chinese tech firms’ asymmetrical dependence on US chips, Washington has made Beijing realize its industrial weakness and technological incompetence.
Similarly, by strengthening controls on exports to South Korea of fluorinated polyimide, photoresist and hydrogen fluoride, and the technologies that rely on them, Japan has almost issued a death sentence on South Korean high-tech firms, as Japan’s production of those items is a near monopoly in the global market.
Despite Seoul having filed a formal complaint to the WTO, it might find that world body’s role in this case will be rather limited, as Japan’s “White Countries” list exempts some nations that have strict export controls from seeking prolonged permission to import controlled goods from Japan.
Essentially it is a favor granted by Tokyo to nations that it considers trustworthy based on national security reasons and not all countries are put on the list, including Taiwan.
Therefore, it would be difficult for Seoul to accuse Tokyo of discriminating against South Korean firms.
Moreover, Article XXI of the WTO’s General Agreement on Tariffs and Trade allows “security exceptions,” meaning WTO members can take action to protect their essential security interests. As a result, Japan’s export controls do not breach WTO rules.
From a broader perspective, it is worrisome to note the prevalence of more countries willing to weaponize trade independence and attack trade partners.
This development will generate severe and profound consequences for the global economy and is likely to further impair the global liberal economic order.
The decline of trust, as Japanese Prime Minister Shinzo Abe pointed out in terms of the Japan-South Korea relationship, will lead to the deterioration of trade interdependence, which would not only devastate global supply chains, but would expedite the spread of trade protectionism.
Consequentially, the world economy could be inclined to reverse the course of economic globalization and move toward more uneven, fragmented, divergent economic blocs.
With widespread economic nationalism, national security has become a catch-all excuse for states to impose instruments of protectionism on their trading partners. The fading salience of free trade, as well as the ascending rhetoric of national security imply that strategic competition among states has intensified and even extended to the global economic arena.
The underlying picture is that states have become more uncertain about the future and increasingly suspicious of their counterparts. As a result, they need to prioritize national security over economic gains to preserve long-term national survival, rather than pursuing short-term economic interests.
What is even worse is that Washington cannot mediate the Japan-South Korea dispute, as it launched similar economic tactics against its trading partners.
As Trump continues to fan the flames of protectionism and undermine the foundation of the global liberal economic order, the frequency and severity of trade conflicts around the world are likely to grow and intensify.
The outlook for the Japan-South Korea dispute is pessimistic and it might not be resolved soon. Nevertheless, the costly consequences of weaponizing trade interdependence are likely to be the rationale behind political leaders on both sides cooling off and restarting negotiations.
However, if the trend of trade protectionism continues, cases of weaponizing trade interdependence are likely to increase and the nightmare of a “beggar-thy-neighbor” scenario might recur in the 21st century.
Eric Chiou is an associate professor of international political economy at National Chiao Tung University and a visiting academic at Academia Sinica.
With escalating US-China competition and mutual distrust, the trend of supply chain “friend shoring” in the wake of the COVID-19 pandemic and the fragmentation of the world into rival geopolitical blocs, many analysts and policymakers worry the world is retreating into a new cold war — a world of trade bifurcation, protectionism and deglobalization. The world is in a new cold war, said Robin Niblett, former director of the London-based think tank Chatham House. Niblett said he sees the US and China slowly reaching a modus vivendi, but it might take time. The two great powers appear to be “reversing carefully
As China steps up a campaign to diplomatically isolate and squeeze Taiwan, it has become more imperative than ever that Taipei play a greater role internationally with the support of the democratic world. To help safeguard its autonomous status, Taiwan needs to go beyond bolstering its defenses with weapons like anti-ship and anti-aircraft missiles. With the help of its international backers, it must also expand its diplomatic footprint globally. But are Taiwan’s foreign friends willing to translate their rhetoric into action by helping Taipei carve out more international space for itself? Beating back China’s effort to turn Taiwan into an international pariah
Typhoon Krathon made landfall in southwestern Taiwan last week, bringing strong winds, heavy rain and flooding, cutting power to more than 170,000 homes and water supply to more than 400,000 homes, and leading to more than 600 injuries and four deaths. Due to the typhoon, schools and offices across the nation were ordered to close for two to four days, stirring up familiar controversies over whether local governments’ decisions to call typhoon days were appropriate. The typhoon’s center made landfall in Kaohsiung’s Siaogang District (小港) at noon on Thursday, but it weakened into a tropical depression early on Friday, and its structure
Since the end of the Cold War, the US-China espionage battle has arguably become the largest on Earth. Spying on China is vital for the US, as China’s growing military and technological capabilities pose direct challenges to its interests, especially in defending Taiwan and maintaining security in the Indo-Pacific. Intelligence gathering helps the US counter Chinese aggression, stay ahead of threats and safeguard not only its own security, but also the stability of global trade routes. Unchecked Chinese expansion could destabilize the region and have far-reaching global consequences. In recent years, spying on China has become increasingly difficult for the US
RSS