Disruption in the global supply chain . . .
Japan’s restrictions last month on exports of three vital materials to South Korea, its third-largest trade partner, poses a threat to the global chip-making supply chain. South Korea accounts for 63 per cent of the global memory chip market, and it imports more than 90 per cent of its vital chip-making materials from Japan – materials that are now subject to restrictions.
Industry, market impacts . . .
South Korea’s SK Hynix, the world’s second-largest memory chip maker, said it is planning to cut investment and production due to possible supply disruptions. In July, the company posted its lowest quarterly earnings in three years. Industry leader Samsung, another South Korean company, reported that its net profit dropped 53 per cent in the April-to-June quarter. South Korea’s removal from the “white list,” meanwhile, will also directly affect an additional 159 items that South Korea imports from Japan. Analysts have warned that the global supply chain for tech equipment has already suffered due to rising U.S.-China trade tensions. Further disputes between Japan and South Korea might send the industry into a downward spiral. Last week, five of America’s largest tech industry groups issued a joint letter to trade ministers in both countries urging them to refrain from further escalating the conflict. Following the news, South Korea’s benchmark stock index, Kospi, fell one per cent that day, while Japan’s Nikkei 225 dropped 2.1 per cent.
When politics and economics collide . . .
Northeast Asian countries have been connected by "hot economics, cold politics," which means their trade relations remain tight, even though they are sometimes overshadowed by unresolved historical issues and disputes over territory. Although economists believe the current restrictions won’t have significant long-term impact on South Korea’s exports, Seoul is nonetheless angry as it may add short-term pressure to its already struggling economy. There may be wider consequences, however, if the region begins moving toward “cold politics and cooling economics” in the midst of a larger disruption of the global trade order.
READ MORE
- The Financial Times: Inside the Japan-Korea tech row that threatens supply chains
- Bloomberg: U.S. tech warns Japan-South Korea spat could cause global harm
