Thematic Report

Korea, Japan and Balkanisation

by Matthew Sigel / Jun 28, 2019

SHARE

The G20 has come and gone, and so, with less urgency for a US-China deal, the new status quo is the continued Balkanisation of supply chains globally, including bilateral spats whose relation to the US-China trade war should be characterised as a true “unknown.” The Korea-Japan trade spat started with Japan announcing export restrictions on three semiconductor process materials on 1 July.

Korea-Japan spat
Still the Korea-Japan spat is important because of the proportion of tech-related materials trade between the two countries, and because both prime ministers are resorting to well-trodden nationalist techniques to either bolster flagging domestic approval, or to drive turnout ahead of Abe’s attempt to consolidate power and change Japan’s long-standing pacifist constitution.

Uncomfortable position
“Soft stimulus” is especially important during periods of flagging growth, but of course raises the risk of dangerous escalation and puts both countries in the uncomfortable position of fighting with each other when they both have the legitimate option of sheltering together in place under the US security umbrella (albeit a less attractive option than it used to be).

Jared Diamond shines a light on the relationships
This Korea-Japan spat was timely from my perspective, as I used the US long weekend to read most of the new book, Upheaval, by Jared Diamond (author of the Pulitzer Prize-winning Guns, Germs & Steel), which contains two excellent chapters on Japan (in addition to expositions of modern Germany, Australia, Indonesia, Finland and the USA), and specifically addresses, in detail, the Japan/Korea relationship.

Japan’s two neglected problems
Diamond polishes Japan’s problems to a shine, explaining away the debt and demographics issue as only an 82-year old with a much longer time horizon than you can do, and focusing lots of attention on Japan’s two “neglected” problems: immigration; and the ‘effect of Japan’s wartime behaviour towards China and Korea on its current relations with those two countries’. Note the contrast drawn with Germany’s own honest reckoning with its WWII past.

Cultural approaches
My colleague Mauro, a Mexican national who is fluent in Mandarin and has long worked in China, put it this way to me regarding the Japan versus China/Korea tension. ‘The difference is that Germans are Christians. This is just a different cultural approach to apologies and forgiveness.’

Structural rifts
While pragmatism is likely to win the day once the Japanese election is over, and the Korean government pledges of monetary support were already in the works and likely to be approved anyway, the flare-up reveals anew the structural rifts among China’s neighbours (which of course China has been actively encouraging), further raising the risk that the “Asian Century” may fail to meet lofty expectations due to historical conflicts rather than economic ones.

Short-term impact
As for the short-term impact to the tech supply chain, you can already see evidence that Japan already appears to be backing away from the type of confrontation that would threaten DRAM or other major semiconductor supplies.

For more insights, follow us on LinkedIn and click to subscribe to CLSA’s monthly newsletter.

Notices And Policies