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Generational Dynamics Web Log for 17-Jul-2019
17-Jul-19 World View -- Japan - South Korea trade dispute worsens

Web Log - July, 2019

17-Jul-19 World View -- Japan - South Korea trade dispute worsens

Roots of the Japan-Korea dispute

by John J. Xenakis

This morning's key headlines from GenerationalDynamics.com

Japan - South Korea trade dispute worsens
Chips -- the law of supply and demand
Roots of the Japan-Korea dispute
Korea-Japan flareups

Japan - South Korea trade dispute worsens

Japanese patrol plane launches anti-missile flares during a fleet review in 2015 (AFP)

Japanese patrol plane launches anti-missile flares during a fleet review in 2015 (AFP)

Korean chip and display manufacturers, including Samsung Electronics, SK Hynix, and LG Electronics, are scrambling to recover from being hit with a one-two punch -- first the US-China trade war, and then Japan's export restrictions on needed materials.

The US-China trade dispute has roiled supply chain relationships throughout Asia. Officials in many companies are moving factories and finding new suppliers, hoping that the dispute will end soon or that, at worst, Donald Trump will lose the next presidential election and the trade dispute can then be settled.

So a lot of people are shocked and surprised that there's suddenly a new trade dispute, this time between Japan and South Korea, and this one may be as intractable as the US-China dispute.

Starting in July, Japan tightened restrictions on the export of three materials used in manufacturing chips and displays, citing what it has called “inadequate management” of sensitive items exported to South Korea, as well as a lack of consultations about export controls. The three materials are EUV photoresist, hydrofluoric acid (etching gas) and fluorinated polyimide.

It's believed that Samsung's existing inventory of EUV photoresist is not large, since stocks can expire within a few weeks, and require demanding storage conditions.

It's going to be difficult to find alternate suppliers since Japan controls 92% of the global resist supply and 94% of fluorinated polyimid.

Two South Korean companies, Dongjin Semichem and Foosung Co, do manufacture the restricted materials, but not in the quantities needed by Samsung and SK Hynix.

Chips -- the law of supply and demand

Both Samsung and SK Hynix have announced 10% cuts in DRAM production, and probably the same in NAND memory production, because of the restrictions announced by Japan on July 1.

Perhaps counter-intuitively, this has benefited both companies, with Samsung's stock shares increasing 2% since July 1, and SK Hynix shares up 8%. This is despite a general fall in Seoul's stock market.

The reason is that the production cuts are reducing the supplies of these chips, while demand remains the same, and so prices are going up, and so profits at Samsung and SK Hynix are also going up. In fact, the prices of DRAM chips have been falling in the last year, and are now returning to their former levels.

The shortages of these chips will mean higher prices for consumers wanting to buy iPhones and other electronic devices, but what is bad for consumers in this case is good for the manufacturers.

Roots of the Japan-Korea dispute

The mutual hatred of the Japanese and Korean people goes very deep. Korea has been the staging ground for earlier invasions by both China and Japan against one another — for example, Kublai Khan's invasions of Japan in 1274 and 1281 or Toyotomi Hideyoshi's attempts to invade Ming China via Korea in 1592 and 1597.

During much of the last two millennia, Korea has been a vassal state of China, in a tributary relationship, meaning that Korea paid China a great deal of money, usually gold and slaves, in return for guarantees of defense from outsiders (i.e., Japan).

Since Korea lies between Japan and China, there have been many wars fought between Japan and Korea, or between Japan and China on Korean soil. In my opinion, the most important and significant battle in east Asia during the last millennium, prior to World War II, was the Battle of Myongnyang (Myeongnyang) on October 26, 1597. The Koreans won a brilliant naval victory against the Japanese navy, using technologically advanced "turtle ships," believed to be the world's first ironclad warship. A Korean contingent of 12 ships lured a Japanese force of hundreds of ships into a narrow channel and destroyed 133 Japanese vessels without any Korean losses. Even today, the battle is described in mythic terms, as an almost miraculous victory.

Japan finally achieved its revenge in the first Sino-Japanese war (1894-95), which was a victory of Japan over China. China relinquished all claims of influence over Korea, which became a Japanese protectorate until it was annexed outright in 1910. Japan also took control of Taiwan, the Penghu Islands, and the Liaodong Peninsula. Korea was a Japanese colony until 1945, when Japan was defeated in World War II.

Those interested in understanding the millennia of east Asian history should read my book, "World View: War Between China and Japan: Why America Must Be Prepared" (Generational Theory Book Series, Book 2) Paperback: 331 pages, with over 200 source references, $13.99 https://www.amazon.com/dp/1732738637/

Korea-Japan flareups

So with those centuries of history, nobody should be particularly surprised when differences between the two countries are flaring up again. There have been two major flareups in the last year, and neither of them appears close to resolutions.

During World War II, Japanese soldiers used Korean girls, both prostitutes and civilians, as "comfort girls." Korea has demanded reparations for the use of the comfort girls, and for other slave labor performed by the Koreans.

The Japanese claim that all such awards were already paid in a settlement concluded in a 1965 treaty.

Then, in 2015, Japan and Korea concluded a bilateral agreement which was intended at the time as the “final and irreversible” resolution of the comfort women issue. However, that turned out not to settle the issue after all. South Korea is now saying that demands from the victims are causing the agreement to "wither," and on October 30 of last year, South Korea's supreme court awarded compensation to four Korean citizens forced to work for the Japanese during World War II, an award that the Japanese are refusing to acknowledge. This is still an explosive issue with vitriolic views on both sides that are unlikely to be settled in the near future.

A second dispute is related to a military issue that occurred late last year.

According to Japan, on December 20 a South Korean warship locked its fire-control radar onto a Japanese patrol plane, as if preparing to shoot it down. Japan made a formal protest to South Korea, claiming that it was a "hostile act." South Korea denied that the radar lock had occurred. In the vitriolic talks that have occurred since then, Korea has claimed that Japanese Self-Defense Force planes have deliberately flown at low altitude near South Korean naval vessels multiple times, terming the acts a "clear provocation."

This brings us back to Japan's announcement that it was restricting sales of the three materials needed by South Korean firms to manufacture chips. Japan has never given a reason for the restriction, except to make some vague claims about national security. At a meeting of the World Trade Organization (WTO), the Japanese representative said the measures are "not a trade embargo but an operational review necessary for proper implementation of Japan's export control system based on security concerns," whatever that means. But it's believed that the Japanese are retaliating for the comfort girl and radar lock issues.

Japan and South Korea are US and Western allies, and have common enemies -- North Korea and China. After centuries of war, there's little chance that the people of the two countries will ever love each other, or even that the current disputes will ever be completely settled. All that we can hope for is some sort of ceasefire.

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(Comments: For reader comments, questions and discussion, see the Generational Dynamics World View News thread of the Generational Dynamics forum. Comments may be posted anonymously.) (17-Jul-2019) Permanent Link
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