The South Korean-Japanese Trade War Has Just Begun

Stratfor Worldview

Editor's Note: This assessment is part of a series of analyses supporting Stratfor's 2020 Annual Forecast. These assessments are designed to provide more context and in-depth analysis on key developments over the next quarter and throughout the year.

Between the slings and arrows of China's global trade war with the United States, a separate battle has been brewing between the Asia-Pacific's next two largest economies: Japan and South Korea. But unlike the economic issues underpinning Beijing's fight with Washington, Tokyo and Seoul's dispute is fundamentally rooted in bitter grievances that date back to Japan's occupation of South Korea during World War II. The politically delicate nature of the dispute will continue to complicate both countries' ability — and desire — to bring a definitive end to their spat. But between the two, South Korea's more export-reliant economy stands more to lose from souring trade relations with Japan.

A Trade Dispute With Political Roots

At the heart of the dispute is South Korea's continued push for restitution for Japan's World War II-era transgressions — a perennial issue that Seoul has recently resurrected amid concerns about Japan's growing military strength. Between November 2018 and June 2019, a series of South Korean court rulings awarded compensation from Japanese companies to forced wartime laborers and their families. But instead of its usual response of stonewalling or compromise, Japan unexpectedly slapped export restrictions on chemicals key to the South Korean semiconductor and display manufacturing sectors in July, citing vague national security concerns about South Korea. Seoul then upped the ante in late August by announcing it planned to withdraw from a key intelligence-sharing agreement with Japan. South Korea's recent eleventh-hour decision to remain in that intel pact has temporarily stalled the tit-for-tat escalation of tensions. But any lasting resolution to the trade spat will still be difficult as long as South Korea continues to demand repentance for wartime offenses that Japan insists have long been resolved.

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