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Federation of Korean Industries (FKI) Vice Chairman Kwon Tae-shin makes opening remarks in an emergency seminar on potential solutions to Japan’s recent export controls in Seoul on July 10. (provided by the FKI)

Amid growing negative opinion in South Korea toward Japan’s recent export controls, the Federation of Korean Industries (FKI) warned that retaliation against Japan would only compound the losses to South Korea by providing Japan with a pretext for further retribution.

“Some have been arguing that the South Korean government should answer with its own export restrictions and other trade policies, but that could be used as a basis for second and third reprisals from Japan, while boycotts of Japanese products and cancellations of Japan visits will only exacerbate the conflict rather than resolving it,” warned FKI Vice Chairman Kwon Tae-shin in an “emergency seminar on the effects of the Japanese economic sanctions and possible solutions” held on the afternoon of July 4 at the FKI’s offices in Seoul’s Yeouido neighborhood.

“The government’s priority needs to be on identifying the causes of the South Korea-Japan conflict and finding a fundamental resolution,” Kwon continued. While Japan has cited “damage to relations of trust” between the two sides as a reason for its export controls, many analysts contend that the precipitating factor lay with South Korea’s Supreme Court rulings ordering compensation for forced labor mobilization during Japan’s colonial occupation of Korea.

In an analysis of the economic effects of the South Korea-Japan trade dispute, Cho Kyung-yup, a senior research fellow at the FKI-affiliated Korea Economic Research Institute (KERI), said, “Japan’s regulations on material exports have a far greater economic ripple effect than tariff imposition.”

“A 30% shortfall in domestic semiconductor materials as a result of Japanese export controls would translate into larger losses for South Korea, with the South Korean and Japanese GDPs respectively declining by 2.2% and 0.04%,” he predicted.

Cho also estimated that the “losses to South Korea and Japan could increase to 3.1% and 1.8% of GDP, respectively, if South Korea answers with its own export regulations.”

“The losses would skyrocket if the shortfall in semiconductor materials increases to 45%,” he said.

“South Korea’s GDP would fall by 4.2% and Japan’s by 0.04%; if South Korea attempts a counter-response, its GDP would fall by 5.4% and Japan’s by 1.3%,” he explained.

Cho pointed to China as standing to gain the most from the South Korea-Japan conflict, predicting its GDP would rise by 0.5–0.7%. The effects on the US would be minimal, he said.

Cheong In-kyo, a professor at Inha University, said the “root case of the South Korea-Japan trade conflict is a breakdown in the political management system due to issues concerning history.”

“It’s a mistake to respond through trade policy to an issue that arose from a failure of political diplomacy,” he said.

“Because the industry trade structure is such that South Korea can’t do much to gain the upper hand on Japan, a strategy of counter measures and escalation would be nothing more than a show for the public,” he added, suggesting that the two sides “need to come up with an agenda for dialogue and resolve the matter through a South Korea-Japan summit.”

Heo Yoon, a professor at Sogang University, said, “While the talk about boycotting Japanese products and avoiding tourist visits to Japan is understandable in terms of national sentiments, the effectiveness is uncertain, and it could be perceived as another form of protectionism that gives the Japanese government a pretext for additional retaliation.”

Lee Ju-wan, a research fellow at the Hana Institute of Finance, warned, “While the current production system can be maintained through cuts to production and the use of the semiconductor stockpile from the recent downturn even if material importation approval procedures due to take 90 days as a result of the Japanese export controls, it would translate into difficulties for the industry as a whole if Japan denies approval outright.”

By Kwack Jung-soo, business correspondent

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