In the decades after the end of the Cold War, the rapid development of globalization made the world believe economic interdependence and an increasingly sophisticated global supply chain would bring everlasting peace and cooperation among nations. However, recent developments in the world, especially the rise of nationalism and populism, the spread of anti-trade sentiment, and the election of such unconventional figures as U.S. President Donald Trump and British Prime Minister Boris Johnson reveal that the optimistic hope for a more cooperative world based on interdependence and free trade has been overshadowed by a general trend returning us to localism, national interest, and xenophobia. The recent trade “quarrel” between Japan and South Korea, which is still developing without a clear way out, is the epitome of such a change. The spat certainly has geopolitical implications for Northeast Asian countries, but it also dramatically affects the region as a whole.
Although the bilateral dispute takes the form of a trade conflict, it has much deeper implications. First, the historical animosity between the two countries is still strong. Though both Japan and South Korea enjoy robust economies and “protection under the U.S. military umbrella” today, Japan's wartime actions continue to haunt relations with its neighbors in Northeast Asia. Since progressive Moon Jae-in was elected president in 2017, he has taken a more confrontational stance on such historical issues. Last year, South Korea's Supreme Court ruled Japanese companies Mitsubishi and Nippon must pay compensation to individuals subjected to forced labor, at the threat of having corporate assets seized and auctioned off to meet the claim. While Japan says the matter was resolved, citing the 1965 treaty and in the 2015 agreement on "comfort women,” it has called for the two countries to establish an arbitration board or take the issue to the International Court of Justice if South Korea declines. Seoul’s firm refusal prompted Japan to unveil unprecedented trade countermeasures against the ROK on July 1, removing three very specific chemicals critical to South Korea's semiconductor and smartphone industries from an expedited export list. Japan may also likely remove South Korea from a 27-country "white list,” which would result in a national security vetting process on South Korea’s purchases from Japan to assess whether Seoul will use them in weapons of mass destruction, suggesting the latter’s involvement with North Korea.
Second, their respective domestic political considerations have made reconciliation difficult from both sides. For Moon, his progressive economic agenda has not achieved any visible economic progress while his pursuit of a breakthrough on the North Korea issue has also suffered stagnation. His approval rating dropped greatly from last year’s 83% to 45%. All these woes make him hardly able to compromise in the face of Japan’s aggressive move. On the other hand, with Japan’s upper-house elections drawing near, it’s very difficult for Abe to back down, especially with strong public support for a tough attitude on the issue. Furthermore, the measures do not affect Japan’s economy much beyond the relevant chemical manufacturers, meaning Japan has little incentive to abandon its current position.
Third, this will likely bring a wide regional spill-over effect. Although the conflict is between two countries in Northeast Asia, given the importance of their economic influence in the region as well as the formation of global supply chains, a shortage of chipmaking materials will hamper Samsung and SK Hynix, the two major South Korean tech companies that make 61% of the world's memory chips. In turn, they supply companies in China and the United States, so companies such as Huawei and Apple will also be negatively impacted. Also, as two vital alliance partners in the region, Japan and South Korea have the power to make or break security cooperation in the Asia-Pacific alliance system that has long been a goal on the U.S.’s regional strategic agenda. U.S. Secretary Pompeo said he encouraged Japan and South Korea “to find a path forward” from the dispute, showing that the U.S. still has an eye on its traditional strategic interests. Yet, as always, it’s not an easy job to broker an agreement between two countries with such a deep historical feud and economic competition. On the other hand, the mounting tensions between the two could directly affect the Regional Comprehensive Economic Partnership (RCEP), of which both are a part. The China-Japan-South Korea Free Trade Agreement, which has been stalled for years and made some progress most recently in April, will also be impeded by the deepening Japan-South Korea tensions. However, the difficulty facing U.S.-Japan-ROK trilateral cooperation also helps save China from a sense of strategic encirclement led by the U.S. in the region.
Finally, several conclusions can be drawn from this conflict. First, trade and economic cooperation alone cannot save countries from tensions or confrontations. Historical memory, cultural identity, national pride, and domestic political motives can sometimes trample a win-win trade relationship. Second, it is unsurprising that, when the leading western country in the world focuses on its own “America first” agenda and denies the value of globalization and free trade, frequently resorting to unilateral economic means such as sanctions, export control, and other long-arm jurisdiction vehicle to serve its own interest, other countries will also follow suit. Japan, as a strong advocator of free trade, has now unconventionally used its economic weapons for political purposes, signifying a game change where raw power is more predominant than alliance cooperation. Third, as Joseph Nye once concluded, mutual interdependence between countries with unbalanced power is fragile, because the stronger one tends to be more offensive in pressuring the other. This has given China a lesson, too: reaching a more balanced state of power with the U.S. is the only way to stabilize the bilateral relationship in the years to come.