Japan and South Korea Duke It Out in Geneva

(Bloomberg) --

A brewing trade fight between Japan and South Korea is raising concern among electronics manufacturers that the regional tussle could spread, disrupting the global production of smartphones and other consumer gadgets.

South Korean officials are sparring with their Japanese counterparts at the World Trade Organization this week over Japan’s July 4 move to impose export restrictions on three classes of chemicals used in the production of semiconductors and digital displays.

The fight on the banks of Lake Geneva revolves around Japan’s restrictions on components needed for electronics made by South Korean manufacturers including Samsung Electronics Co. and SK Hynix Inc. It’s a tangled web of mistrust that dates back generations.

Trade relations have soured over the past year after South Korea’s top court ordered two of Japan’s largest companies — Mitsubishi Heavy Industries Ltd. and Nippon Steel & Sumitomo Metal Corp. — to compensate the families of South Koreans who were forced into labor during World War II.

The Japanese government said the move was illegal and unsuccessfully called on Seoul to resolve the matter according to a 1965 treaty that normalized relations and included a $300 million payment.

After the South Korean government rebuffed Japan’s overture, Tokyo announced its export restrictions and proposed to remove South Korea from its list of nations that are exempt from national-security export controls.

The issue raises broader concern for the health of the global trading system because it may thrust a yet another politically charged national-security clash upon the WTO’s already hobbled dispute settlement system. Though the WTO has sought to steer clear of national-security matters, such disagreements have proliferated since the Trump administration last year imposed national-security tariffs on its trade partners’ steel and aluminum exports.

Charting the Trade War

The International Monetary Fund slashed projections for growth in the volume of goods and services traded this year, reducing its estimate by 0.9 point to 2.5%.

Today’s Must Reads

• Shanghai showdown | U.S. officials go to China’s bustling port city next week to resume talks aimed at charting a path toward a trade deal between the world’s two largest economies.
• EU’s latest threat | Brussels is expanding its retaliation arsenal in the event the U.S. imposes tariffs on auto imports, the latest in a volley of threats straining transatlantic ties.
• Feeling the tariffs | Harley-Davidson has been caught in the crossfire of trade disputes since last year, when it announced plans to shift some U.S. production overseas.
• Germany struggles | Renewed signs of weakness in Europe’s powerhouse economy don’t bode well for hopes that the euro area will experience a rebound in the second half of 2019.
• Beggar thy neighbor | Thanks to synchronized monetary easing, any simultaneous moves to weaken currencies might cancel each other out, making such policies a waste of time.

Economic Analysis

• Second-half stimulus | A trade truce and central-bank rate cuts ease fears of a second-half slump.
• China’s toolkit | Here’s a guide to understanding the tools the PBOC uses to manage liquidity conditions.

Coming Up

• July 25: Hong Kong trade balance, CPB monthly world trade monitor

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

©2019 Bloomberg L.P.