It is hard to get a tweet in between President Trump and his infinite trade war rhetoric with Europe over cars and airplanes, with foreign producers of steel, and with China over just about everybody else.
However, brewing beneath the surface in Asia is a terse confrontation between Japan and South Korea, adversaries of centuries past. If you don’t think that Trump’s aggressive approach to trade is working, you are mistaken. Japan is following his lead into a trade brawl with South Korea.
Tensions between Japan and South Korea go back centuries. Japan’s colonization of Korea between 1910 and 1945 is still resented. Perhaps you think that the idea of reparations for slavery is only an American issue. Japan believes a 1965 agreement resolved claims by South Korea over forced labor. It is incensed that South Korea’s Supreme Court last year ordered Japanese firms to compensate victims. Good luck with that.
Let’s follow this spat between Japan and South Korea from top to bottom, and discover how the global economy will be affected. Japan took its most serious action on July 4th when it began restricting exports to South Korea of three specific chemicals used to make semiconductors and smartphones.
Keep going. Doesn’t sound that bad so far.
Japan accounts for as much as 90% of global production of these chemicals. Interesting. Now you are getting my attention. Japan exported nearly $400 million worth of them to South Korea last year. Is that a large number? Yes, it is. South Korean firms are the world’s dominant manufacturers of memory chips, which need these specific chemicals. If Japan were to choke off exports, the pain would ripple through global tech supply chains.
So we have established that this trade war between Japan and South Korea is a high stakes game. How big is it exactly? The two countries, whose trade relationship, worth over $80 billion a year, is larger than that between France and Britain. It might be time for the two countries to step back and take a deep breath.
What goes around comes around for Japan. In 2011, China played a similar trade game by limiting the amount of rare-earth minerals it would export to Japan. As such, Japan was pushed to developing its own supply for home-grown use. Now South Korea is in Japan’s shoes, already beginning its own procurement of the minerals necessary for both microchips and military weapons.
On a broader geo-political scale, both Japan and South Korea are looking for alternatives to China for automobile manufacturing. Trump has threatened to place tariffs on auto exports from China, which would certainly affect the regional supply chains. Asia in particular has had to wake up to the real world of trade. They have been allowed to run rickshaw by former U.S. administrations with no contempt.
Trump uses the bully pulpit, whether you like it or not, to explain that his motives are essentially that of national security. One of Trump’s first administrative actions was to ditch Barack Obama’s Trans-Pacific Partnership. Obama was more concerned with uniting our allies of Japan and South Korea than he was with American interests.
Don’t even get me started with pallets of cash and unrestricted nuke build up in Iran. The religion of peace is at it again.