Japan prepares for a prolonged trade war with South Korea

Japan’s Ministry of Economy, Trade and Industry published a revised Export Trade Control Order on its gazette on Wednesday that excludes South Korea from its “white list” of trade partners. This is an official announcement of the decision made by Japan’s Cabinet on Friday and the change will take effect on August 28.

Japan also announced detailed regulations but did not add additional export items that are subject to separate approval from the government aside from the existing items included in its first restriction such as etching gas, photo resist, and fluorine polyimide. Eyes were on how many more among some 1,110 strategic items would be added to the expanded export restrictions. It is fortunate that no additional items were newly added to the restriction. But it is too early to say that Japan has eased or put off its economic retaliation against South Korea.

Japan has degraded South Korea to Group B among four groups of trading partners, suggesting that it can easily add additional export items to be subject to tougher regulations anytime. Its intention is to be prepared to tighten the reins anytime it wants. Japan’s Chief Cabinet Secretary Yoshihide Suga said Wednesday that taking South Korea off its “white list” is neither economic retaliation nor a countermeasure. It could mean that Japan does not wish to escalate the current situation. But to say that it does not intend to undermine bilateral relations after wreaking havoc on the Korean economy with its export regulations is like trying to cover up the sky with a palm. Judging from its attitude, Japan can add additional export items that are subject to tougher regulations anytime when another issue comes up.

Ministers of South Korea will discuss on Thursday whether to degrade Japan from the current Category A of 29 trusted trade partners to a newly created Category C. It is a minimum and rightful corresponding measure South Korea can take, which will result in tougher screening process, stricter approval method, and more application documents for Japan. But its impact on Japan will be limited since the country does not have high dependence on Korean imports.

Degrading South Korea to Group B but not designating additional export items that are subject to tougher regulation shows Japan’s intention to prepare for a prolonged trade dispute with South Korea while holding the whip hand. South Korea should do its best to replace Japanese high-tech materials with domestic ones and diversify import channels so that businesses can resolve their inconvenience.