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Japan – South Korea trade conflict could have Global Consequences

The chief executive officer of the sovereign wealth fund of South Korea said that the rising trade tensions between Japan and South Korea might an external impact as a local conflict, but in case of escalation, it will damage the global tech industry. On last Wednesday, South Korea demoted trade relations with Japan and removed Tokyo from its preferred partners’ list that receives speedy approvals. The experts termed the move as a revenge of South Korea against Japan’s last month announced to remove Seoul from its privileged list of trusted trade partners.

CEO and chairman at the Korea Investment Corporation, Heenam Choi said at the Singapore Summit that if the trade dispute continues in the long run between these two bordering countries, it could have a huge effect because it might interrupt the worldwide value chain, especially in the high-tech sector. He added we are really concerned about that type of trade tension. Few of the top technology products that both states buy from each other include parts such as integrated circuits, electronic equipment, various materials used to develop smartphones, computers, and cars. The worldwide production for these worthy products might disrupt if their trade conflict continues for a longer period.

Arise of the Trade Conflict between South Korea and Japan

Trade tensions between the historic rivals deepened in July when Japan decided to stricter restrictions on three critical high technology materials’ exports used by tech firms of South Korea such as Samsung to develop smartphone displays and memory chips. After the announcement, Seoul launched a complaint from its side at the World Trade Organization (WTO). Whereas, Japan did not explain comprehensively what’s driving its trade moves against South Korea. However, media reports suggested the decisions of Tokyo could in revenge against their continuing clash over forced labor during World War II.

Following calls to boycott Japan, sales of products of Japan in South Korea from beer to clothes to cars – dropped. South Korean domestic media also reported that lawmakers projected a bill to revise the Korea Investment Corporation Act to halt the sovereign wealth fund from investing in the companies of Japan involved in the period of war slave labor. If a law passed, KIC would have to break the investment in those companies, Choi added.

Trade war of the United States and China

Choi said that the more significant point of concern for the sovereign wealth fund is still the trade dispute between the U.S. and China. That trade conflict shaken markets created ambiguity for trading and reduced the international growth outlook. Last year KIC ended with $131.6 billion assets under management, now ready to be more elastic in terms of allocations of the asset as the dispute between the United States and China continues.

Heenam Choi said that he is already a little bit positive about the trade tensions; however, it looks ugly. The sovereign wealth fund last year noted a net loss of 3.66% on overall assets, it was down from a 16.42% increase in 2017. In its annual report, KIC said that last year it faced some challenges in the international financial market included a rigid policy in the United States, uncertainties about an economic slowdown at the global level and trade war.

Furthermore, Choi added that it might not be comfortable for both countries the United States and China to reach an instant agreement in the trade conflict, there is a solid incentive for them to come on some sort of deal. He said it might not a winner takes overall game eventually and might even turn out to be a lose-lose situation for both nations.

Choi added they are going to negotiate some areas. Even though it looks horrible but he is a little bit optimistic about a trade war. The outcome for some type of resolution between South Korea and Japan seemed less certain as the conflict just begun. He explained that both states play a vital role in the worldwide supply chain, and neither of them desires to disturb that.