The other trade war—Japan vs South Korea

Apart from the chronic historical and political issues touching on comfort women, Japanese textbooks, the worshipping of Japanese leaders at the Yasukuni Shrine, and territorial disputes over Dokdo/Takeshima Islands, the issue of forced laborers during Korea’s “decades of shame and humiliation” (Japanese colonial rule) remains divisive for Asia’s second (Japan) and fourth (South Korea) largest economies.

Late last year, the South Korean Supreme Court affirmed a ruling that Japanese companies Mitsubishi Heavy Industries Ltd. and Nippon Steel should compensate victims of forced labor. Japan, drawing from its argument of “apology fatigue,” rationalized that reparations, worth $800 million in grants and soft loans, had already been made, per the 1965 Treaty on Basic Relations.

In retaliation, Japan imposed export restrictions on three key chemical materials upon which South Korea is highly dependent for the production of semiconductors. Crucially, South Korea is among the world’s top exporters of semiconductors, and semiconductors constitute a fifth of its exports. In addition, Japan delisted South Korea from its “white list” of preferential trade partners.

Japan’s actions were viewed by South Korea as a “declaration of economic war,” with South Korean President Moon Jae-in openly declaring that Korea “will never again lose to Japan.” In response, Seoul removed Japan from its own white list, assured state support for Korean businesses, filed legal action against Japan at the World Trade Organization, and decided to substantially reduce import dependence on Japan. Most recently, Seoul opted to cancel intelligence cooperation (General Security of Military Information Agreement) with Japan.

At the people-to-people level, South Koreans have called for a nationwide boycott of Japanese products such as Uniqlo, Asahi and Toyota. Tourism between the two countries has also taken a hit as South Korea’s carriers have reduced two-way flight routes, while South Korean cities have suspended their exchange programs with Japan.

The Philippines has minimal exposure to this trade war given its nonexport-oriented economy. If the China-US trade conflict is to be the basis of the Duterte administration’s stance on trade wars, the Philippines is a neutral party, but should also call for the safeguarding of globalization and trade liberalization.

Regionally, a prolonged and expanded Japan-South Korea economic rift may stall free trade agreements such as the China-Japan-Korea Free Trade Agreement (CJK-FTA) and the Asean-led Regional Comprehensive Economic Partnership (RCEP), where both Japan and South Korea are members. In terms of security, antagonistic Japan-South Korea relations would further polarize the already rivalrous relations in Northeast Asia. And as Japan and South Korea are both US allies, America’s regional force posture will arguably be impacted in terms of divergence on priority agendas and security outlooks.

For the Philippines, it is not encouraging to see its close traditional partners at loggerheads with each other. In 2018, Japan was the Philippines’ second largest trade partner, and South Korea was the Philippines’ fourth largest. In the same year, Japan was the Philippines’ largest source of official development assistance, while South Korea was the Philippines’ largest tourist market. Both countries are also close Philippine defense partners, and are major sources of Philippine military and maritime assets.

Moreover, the soft power of both countries (anime, commercial brands, cuisines, K-pop) have had a profound impact on Filipino culture. In fact, both countries are two of the most popular tourist destinations for Filipinos.

Amid growing protectionism and the weaponization of trade, it is important for the Philippines to recognize that asymmetric interdependence equates to political vulnerability, and that to hedge against uncertainties, there needs to be diversified foreign economic engagements, developed domestic industries, and proper administrative, incentive and infrastructure systems for foreign investors.

Two key variables will continue to shape Japan-South Korea relations: the unsettled historical and political issues, and the changing power dynamics between the two countries, particularly as South Korea, like China with the United States, grows in national confidence and global economic competitiveness.

Aaron Rabena is a research fellow at the University of the Philippines Korea Research Center and Asia-Pacific Pathways to Progress, a foreign policy think tank.