Seoul prepares for possible escalating conflicts with Tokyo

With Japan poised to spread economic retaliation against South Korea, Seoul has started to comprehensively examine the possibility of damage spreading from electronics to other industries such as automobiles and fine chemicals, and the financial sector. The move has apparently been taken to prepare for possible escalation of conflict between Seoul and Tokyo into a full-blown economic war.

According to government sources on Friday, the South Korean government urgently sent officials to certain manufacturing companies including carmakers, electronics and chemical firms. The officials have checked the weight of Japanese imports and the possibility to diversify sources, and Japan’s move to impose additional export restrictions.

Industries that have been reviewed also included the chemical materials sector, whose self-sufficiency ratio remains low. “We are closely monitoring the situation especially small- and medium-sized companies, which are producing even small volumes of essential products that cannot be substituted,” a government official said.

According to the Korea International Trade Association, the portion of Japanese imports exceeded 30 percent in as many as seven products among the top 10 products that Korea imported from Japan between January and May this year. They include Xylene (95.2 percent), which is an industrial solvent, steel and hot rolled non-alloy steel sheet (56.1 percent). If Tokyo decides to add these products, for which Korea heavily depends on imports from Japan, to the items for export control, Korean companies will inevitably face disruptions in production.

Judging that Japan’s export restrictions could be protracted, financial authorities have also started inspection of credit risks and borrowings of small and medium-size companies in Korea, which are using those items as raw materials. The authorities are keeping a close watch on Japanese capital’s flow in Korea to be prepared for Japan’s additional restrictions including control of money transfer.


Hye-Ryung Choi herstory@donga.com · Choong-Hyun Song balgun@donga.com