Japan versus South Korea: Asia’s other trade war

Seoul's Myeong-Dong district at night © Alamy
Korean equities look “screamimgly cheap”

“Decades of bickering” between South Korea and Japan are feeding an increasingly nasty trade dispute, says The Economist. In August, Tokyo removed its neighbour from a “White List” of trusted export destinations, prompting Seoul to respond in kind. South Korea’s chipmakers rely on imports of chemicals from Japan, but Tokyo is “signalling that it could at any moment cripple” Korea’s biggest industry, a “wildly aggressive, disproportionate threat”.

The new trade war is not helping South Korea’s export-dependent economy, say Sam Kim and Hooyeon Kim in Bloomberg. Korea’s trade data serves “as a barometer of global demand”. Yet exports fell by 13.6% year-on-year in August, the ninth consecutive month of contraction.

Removal from the White List means that Japanese exporters will have to go through a lengthy application process to sell certain goods to Korea, say Alex Holmes and Gareth Leather of Capital Economics. The knock-on effects could disrupt technology supply chains across Asia. Korea produces 40% of the world’s liquid crystal displays and 20% of its semiconductors. “Vietnam, which sources over 20% of its intermediate goods imports from South Korea, is likely to be worse affected.”

Korean equities now “look screamingly cheap”, says Mike Bird in The Wall Street Journal. On a price-to-book ratio of 0.8, they are less expensive than “at almost any time in the past 15 years”. Yet falling global demand for cars, smartphones and computers leaves Korean industry in a bad way regardless of the trade wars. Keep your distance. As for Japan, it has worries of its own. Strong employment has so far failed to generate solid wage growth, and next month’s sales-tax rise could undermine tenuous economic growth.