The trade war between Tokyo and Seoul will likely result in a price hike in the global tech industry, since South Korean firms supply over half of the world's semiconductors and display screens for many devices.
Smartphone, laptop and even television prices could soon skyrocket due to this bitter spat between the two countries.
Tensions between both nations further escalated on Friday when Japan removed South Korea from a favoured trading nations list, prompting Seoul to warn it would not be defeated again by its neighbour, reports Reuters.
Firms taking a hit, but damage still limited
Speaking to Bloomberg, fund manager at HDC Asset Management Yoon Joonwon, said: “Some of the products to be removed from the white list could become a problem, such as blank masks or shadow masks—products that Japanese makers monopolize.”
“Many people don’t expect Samsung will shut down its plants because of this, but if the removal from the white list takes effect, there will be a Korea risk premium for investors,” Joonwon added.
South Korea’s two tech giants, Samsung Electronics Co and SK Hynix Inc, are already struggling with the earlier export restrictions. Shares of Samsung fell as much as 2% in Seoul on Friday, while SK Hynix dropped as much as 3%.
Still, the damage has been limited so far as South Korean firms are using stockpiled chemicals to maintain their production. However, if the trade restrictions last more than a few months, South Korean manufacturers will be hard-pressed to find alternative suppliers.
The trade war has also brought about growth in the business of local South Korean suppliers.
“Samsung will keep pushing ahead with a plan to source raw materials locally, even if the dispute with Japan is resolved,” Kyung-Min Kim, an analyst at Hana Financial Investment, said while speaking to Bloomberg.
The South Korean chip association warned that this would lead to a chip shortage that could “bring a stagnation or regression of the world’s most cutting-edge technology,” according to Foreign Policy.
Fearing that Japan could further ramp up the trade pressure, South Korea is exploring all options—including scrapping an intelligence sharing pact with Tokyo.
Reuters, quoting a senior South Korean official, reported that Seoul wanted a cooling off period at the moment to find reach diplomatic solution.
What triggered the war?
On July 1, Japan announced that it would restrict the export of three chemicals used to make semiconductors and flat screens—key components of smartphones and other advanced technology—to South Korea.
This was a targeted move by Tokyo, as South Korea is the largest manufacturer of chips, while Japan is the largest supplier of its three raw materials.
The immediate trigger for the trade war, however, seems to be a South Korean court case late last year, which ruled that Japan’s biggest steelmaker, Nippon Steel, used forced labour during WWII.
The court ordered the firm to compensate some South Korean survivors with about $89,000 each.
A similar case last year ruled against Mitsubishi Heavy Industries, and other cases against scores of other Japanese firms are being heard in lower courts.
Although Japan argues that it has already made amends with a monetary settlement in the 1965 accord that re-established diplomatic ties between both nations, South Korean courts do not see it that way.
This year, Japanese Prime Minister Shinzo Abe warned South Korea that if it enforced the court rulings, Japan could retaliate with economic measures, which is exactly what Tokyo did.
The problem could soon turn highly political as the US relies on Japan and South Korea for a united front to apply pressure on North Korea and China.