Moon Warns Korean Business to Prepare for a Prolonged Fight With Japan
Moon Warns Korean Business to Prepare for a Prolonged Fight With Japan
(Bloomberg) -- South Korean President Moon Jae-in warned top business leaders of an extended battle with Japan over its export controls on vital manufacturing materials, raising concerns their latest fight could disrupt global supply chains.
On Wednesday, Moon told executives from about 30 companies including Samsung Electronics Co., SK Group, Hyundai Motor Co. and Lotte Group, that he saw Japan targeting South Korea’s economy for political gains. Japan last week imposed curbs on highly specialized products needed to make semiconductors and computer displays, and could also remove its neighbor from a list of trusted buyers.
“Despite our diplomatic efforts, we cannot rule out the possibility of this situation becoming prolonged,” Moon said. “Our government is forming a response system demanding Japan to withdraw its unfair export limit measures with a sense of urgency,” Moon said in Seoul, calling the current situation an “unprecedented emergency.”
Japan has said it made the move to ensure proper security and questioned its trust of South Korea after courts there last year ruled that Japanese companies needed to pay compensation to Koreans conscripted to work at mines and factories during Japan’s 1910-45 colonial rule over the Korean Peninsula. Tokyo said all claims were settled by a 1965 treaty and that it didn’t see the court decisions as valid.
Why Japan and South Korea Still Spar Over History
The dispute has moved into the economic arena what the two see as proper contrition for Japan’s colonial rule. Past fights have mostly kept industries on both sides out of the fray but the worry now is that tensions between the major trading partners and U.S. allies could spiral out of control.
Moon on Wednesday proposed an “active support” from the government’s end for companies to diversify importers and expand local production, adding that the export curbs would be reflected in an upcoming extra budget bill proposal within the National Assembly.
The stakes are high for Moon, who has seen the economy stumble under his watch while the jobless rate has hit levels it hasn’t seen in about a decade.
Tech Sector Pressures
While the stricter checks that took effect Thursday don’t amount to a ban, exporters would be required to obtain a separate license each time they want to sell the materials to South Korea, causing delays.
Samsung Electronics’ share rose as much as 2.2% as traders saw an output cut for flash memory-chips due to the restrictions, which could result in a price rise. Peer SK Hynix gained as much as 5%.
Chips Feel Supply Chain Woes as Japan Curbs South Korea Exports
South Korea is taking its case over the expert measures to the World Trade Organization. Its courts have ruled since late 2018 said the victims of forced labor weren’t compensated for their emotional pain and suffering.
The new restrictions could hurt the profits of South Korean firms that rely on Japanese suppliers, such as Samsung Electronics and LG Display Co. Japan has 90% of the market for chips used in smartphone displays, as well as the etching gas used to make chips. Unless the dispute gets settled, South Korean firms will have to find alternative supplies from Taiwan and China, while Japanese manufacturers would need to divert their production.
Mark Mobius, an emerging-market guru, warned the simmering tensions between Seoul and Tokyo won’t be quickly resolved and investors should be prepared.
“We can’t see an easy resolution unless the U.S. attempts to negotiate a resolution,” said Mobius in an email interview, who set up Mobius Capital Partners LLP last year after three decades at Franklin Templeton Investments.
--With assistance from Sohee Kim, Heejin Kim and Shinhye Kang.
To contact the reporter on this story: Jihye Lee in Seoul at jlee2352@bloomberg.net
To contact the editors responsible for this story: Brendan Scott at bscott66@bloomberg.net, Jon Herskovitz, Kazunori Takada
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