Japan, back off on Korea: Samsung and Hynix are not Huawei
AEIdeas
Taking a page possibly from the United States’ Huawei playbook, the Japanese government has started a process that could lead to a total cutoff of Korean companies from vital elements necessary for the manufacture of semiconductors and panel displays. The point of this blog is not to take sides on the tortured history of Japanese-Korean relations over the past century. Rather, it is to argue that even with possible provocations, Japan has chosen a dangerous and destructive mode of retaliation, one that is likely to greatly disrupt global electronic supply chains and bolster China’s push for 5G wireless dominance.
The current feud’s origins stem from Japanese depredations (forced labor and “comfort women”) against the Korean people during the long period of colonization from 1910 to 1945. Although the two nations reached an agreement on reparations and sizable compensation in a 1965 pact, the harsh history continues to fester in Korean society. Last year, a South Korean court decision reopened the old wounds by ruling that Korean citizens could also seek individual claims for reparations. Japan’s recent actions stem from frustration over the Korean government’s refusal to seriously (in Japan’s view) seek accommodation. As to actual timing, the then-looming Japanese Upper House elections and Prime Minister Shinzo Abe’s desire to cement control was also a factor.
Japan (spuriously) invoked national security to justify its action, arguing that South Korea was not sufficiently guarding against seepage of sensitive materials to North Korea. Specifically, Japan placed limits on Japanese companies supplying chemicals and parts to South Korean companies — three chemical materials that are central to the production of electronics, particularly for semiconductors and flexible display panels. Japan controls some 90 percent of the markets for two of the chemicals and 70 percent of the third.
In the immediate future, it would be difficult for South Korean companies to find and utilize replacements. Japan has also threatened to go further and remove Korea from the so-called white list, a list of countries that have privileged security status. This would force Korean companies to go through a time-consuming procurement process in the future.
Japan’s action hits major Korean technology leaders such as Samsung, Hynix and LG Display directly and immediately. It will also disrupt global supply chains, as these companies have customers worldwide. Samsung and Hynix together produce about 60 percent of the world’s memory chips, which are essential to multiple electronic devices ranging from mobile phones to personal computers and commercial servers.
But most vitally for the US, Samsung is a potentially large player in the future of 5G wireless. Although it got a late start, the company is pouring research and resources into the development of base station technology and antennae that will form the backbone of 5G networks, at least at the outset. For what it considers urgent security imperatives, the US has mounted a worldwide campaign to keep companies and nations from including Huawei backbone equipment in their 5G rollouts.
But it is not clear if Huawei’s two current competitors — Sweden’s Ericsson and Finland’s Nokia — will be able to match Huawei’s prodigious resources. Samsung could develop into a potent third option over the next several years. The bottom line is that any actions by US allies that could jeopardize such an option should be forcefully opposed.
Certainly, it will be a difficult and delicate process to mediate between America’s two closest allies in Asia. But both sides have asked for US assistance in working through the crisis, and President Trump on Friday acknowledged a US strategic role. (Although he also complained about too much on his plate.) National Security Adviser John Bolton seems to be the designated hitter in this alliance spat. And now that Japanese Prime Minister Abe has won convincingly in the National Diet Upper House elections, he may have room to compromise.
There has been talk of appointing a special mediator or taking the issue to the World Trade Organization. Whatever the decision on the negotiating forum, it is imperative that Abe be persuaded (pressured) to suspend the export prohibition of vital high-tech materials to South Korean companies. Crippling alliance partners in the crucial competition with Beijing is unacceptable.
As noted above, this would not preclude Japan from ultimately choosing another retaliatory weapon. All of this does not exonerate South Korean President Moon Jae-in, who also should be pushed to tamp down, and not just inflame, the understandable but ultimately self-defeating emotions of the South Korean people.
