Why Are Korea and Japan In A Trade War?

korea japan boycott trade war
Photo credit: Yonhap News Assoc.

The signs of a trade conflict between Korea and Japan have been obvious for some time. Take a walk down a street in any business district and you’ll see pictures of Japanese products crossed out in red. The Korean boycott of Japanese products started in early July, and it has only grown since then. Tensions between the two countries have always simmered to varying degrees for historical reasons, and sometimes it’s hard to know what set off a round of protests or angry sentiments. As it turns out, the most recent flare-up is a combination of factors both old and new.

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Korean Courts Side with Korean Forced Laborers

Back in October of 2018, a Korean court issued a landmark decision ordering Nippon Steel and Sumimoto Metal Corporation to compensate four South Koreans for forced labor during World War II. The ruling seems to have sparked similar decisions, and in November 2018 a Korean court ordered Mitsubishi Heavy Industries to pay five women 100 ~ 150 million won. In a separate ruling, the same court then ordered them to pay six men 80 million won for forced WWII labor. The suits were filed in 2005 and 2004 respectively and worked their way to the Korean High Court, which upheld the lower courts’ decisions.

These are hardly the only disputes between the two countries. Issues such as acknowledgment and reparations for Comfort Women have roiled relations between Korea and Japan for decades. But what makes the Nippon Steel and Mitsubishi rulings potentially far more damaging is the real possibility of asset forfeiture by private businesses. Because these suits are against Japanese companies, the plaintiffs could file motions to seize these companies’ assets if they refuse to comply with the court’s orders. Japan clearly sees this as an escalation in the long-standing territorial and colonial-era disputes. Since last year Japan has repeatedly voiced its disappointment with the court’s decisions, and there is no sign that any of these companies plan on paying. 

The 1965 Treaty: The Source of the Problem

Before we go any further, we’ll need to back up to the longest standing point of contention between the two countries in their modern relationship: the 1965 treaty to normalize diplomatic relations between Korea and Japan. It is the foundation for Japan’s position. The treaty required Japan to pay South Korea about 500 million US dollars (about 600 billion won) in loans and aid. According to the wording of the agreement, this would have settled all complaints and claims between the two countries. A January 2005 Korean government disclosure of documents showed that during treaty negotiations Japan offered to compensate individuals, but the Korean government refused, opting instead to handle individual complaints from its Korean citizens on its own. The Japanese government refers to this agreement each time there is a claim or complaint about Japan’s behavior as it relates to Korea, be it Dokdo, history textbooks, or shrines to fallen soldiers. South Korea usually claims that the 1965 treaty was never meant to cover individual complaints. The 2005 documents do however shed a little light on why Japan consistently insists that all debts have been paid. 

Nevertheless, the Korean High Court thinks the treaty at the least does not prohibit Korean individuals from seeking compensation from Japan or Japanese companies during the colonial period. It is in this light that all subsequent disputes and tension should be viewed. Regardless of who is right, the two countries’ opposing views of the 1965 treaty have led to decades of mutual suspicion. 

Sanctions: A New and Scary Kind of Diplomacy

A number of countries, including the US and China, have recently imposed tariffs and trade sanctions as a way to punish countries, or extract diplomatic concessions and favorable trade deals. Because of the potential for negative economic effects, these tactics aren’t often used in diplomacy, unless they have fairly broad international support. When they don’t, they can lead two aggrieved parties into an escalating “tit for tat” that usually ends badly.

This is why the Korean Supreme Court’s recent decisions are so potentially explosive. Japan sees the latest Korean court decisions as an attempt to circumvent settled doctrine, which they believe was further settled by instances such as the 2015 agreement to apologize and pay 8.3 million dollars (10,078,856,000 won) to Comfort Women. The prospect of companies having to forfeit assets is seen by Japan as a monumental raising of the stakes in a dispute that they believe has nothing to do with business or trade relations.

Japan Follows Global Trend, Drops Sanctions Hammer

So, in July, Japan imposed restrictions on exports to South Korea of several chemicals used by Korean tech companies to make semiconductors and smartphone screens. This doesn’t mean that Korea can’t import any of these materials, but they do have to file for permits to import them. This will likely lead to delays in production and possibly disrupt global supply chains. The Abe government took South Korea off of its whitelist of trading partners, citing concern over South Korea’s import and export controls as the reason for the sanctions. 

And this is where it’s important to read between the lines. Japan produces the vast majority of the world supply of these chemicals, and Korea produces about half of the world’s semiconductors and about 90% of the world’s smartphone screens. Given the dependence of one on the other, it’s easy to see why most Koreans, and even economists, see the sanctions as political retribution. It’s pretty clear to most observers that this is indeed payback for the Supreme Court’s decision to force Japanese conglomerates to compensate South Korean laborers.

South Korea Responds with a Boycott

The potent mix of economic harm and historical grievance has created a toxic atmosphere between the two countries. Polls in Japan show over 70% approval for Abe’s sanctions, a fact that can only inflame South Koreans’ sense of injustice. The boycott started on July 15 when a group of small business owners protested in front of the Japanese Embassy. It has only grown since then, to the point that E-Mart saw nationwide sales of Japanese beer plummet by 62.7%. A video of a Korean man in Incheon smashing his Lexus went viral in a day. Other Japanese products, particularly cosmetics, are feeling the pinch, and all indications are that the boycott will only expand.

Where Do We Go From Here?

The traditional complaints in Korea and Japan’s muddled history are well known to expats living on the peninsula. They’re near the surface in any exchange or deal that the two countries make. But this chapter is significantly different. Since the normalization of relations, never has a political problem infected the countries’ trade relationship, where retribution could lead to serious economic problems. And this is exactly what we see now. While it is true that Korea seemed to have set off the latest round with a series of court rulings against Japanese firms, Japan only upped the ante. Whether or not Korea’s boycott elicits a more pointed or dangerous reaction remains to be seen.

Freelance Writer
  1. Nate,

    Thanks for the wonderful article. I have been crafting a reply for the past two hours and what you will find below is that word soup. I think you will be able to extrapolate my state of mind and coherently comprehend my intended comments.

    I think your article is great and I appreciate the in-depth insight that is often difficult to find in English. I have been here as long as you and I still ponder how I can be in the dark on so much of what is happening day-to-day.

    I have read and dissected the United Nations – Treaty Series of 1966. It is a hardcore document and legally,

    Japan ensured their money would be coming back in one way or another.

    I cannot help but feel tense about Koreas decision to stake claim to the monies, on behalf of the Korean people. Japan offered to make settlements directly to claimants. It was the Government that denied that gesture and choose to be lord and master over the monies paid.

    I am curious as to what oversights were put in place to ensure the Korean Government acted in a dignified manner on behalf of its people, with their best interests in mind.

    What you came up with is fantastic. I appreciate your work and greatly benefitted from reading the final product and supporting materials. Without your efforts, I never would have been able to educate myself on the actual facts of the settlement between Korea and Japan over atrocities during the occupation.

    From here on are my ramblings and thoughts. I hope you take the time to read them because maybe my perspectives will spark another article following up this one with what needs to happen globally. I think it is time everyone to take long hard looks into their mirrors and decide if who they are deep down inside is who and what they want to be moving forward.

    As for me, I choose to improve the culture of me and will act accordingly. I wish for others to do the same because it is time for peace and calm.


    Benjamin Schwartz

    your article seems to have overlooked something that must be said out l

    oud to any person willing to try and “#move forward” “#together”.

    I have a simple point. Today, Japan and Korea have contentious relations. America has contentious race relations. The Middle East is fraught with contention.

    As a witness to modern history, I am sickened by the detestable hate that is rampant in this modern era.

    For as many steps forward technology, medicine, science, culture, education has taken us as a species, we are still racially divided, culturally discriminate, prejudiced toward that which is different, .and consciously ten steps back.

    The state of affairs globally is wrong. It has to change. Every person comes with a “#CULTURE OF ONE”.

    One and for all, each person must, “#be the change!”

    How? Offer an ear to that which is different.

    Engage in embarrassing conversations and risk-sharing sincerities.

    Be open and honest. Instead of being angry at an entire race!

    Get into some dialogue with your perceived “enemies” and talk out your feelings.

    Share honestly, bring emotion to fore.

    Set ground rules, Be clear upfront. Tell others you have contentious feelings toward them, their race, their actions, and that you want to understand them. You seek clarity.

    We all need to take risks to reach out to others so that they may come into our lives and surprisingly enrich us as individuals.

    Who we are as individuals is what we bring to one another. Harbouring hatred for any reason only creates tension, segregation and divisiveness.

    This stand-off is a breach of protocols and is a direct violation of the United Nations Treaty Series of 1966.

    “First Protocols”, Article II, part 2, states, “The supply of the products of Japan and the services of the Japanese people shall be carried out in such a manner as will not “substantially” prejudice the normal trade between Japan and the ROK or impose additional foreign exchange burden on Japan.”

    Black letter law…lending to a possible source for the current state of affairs.

    The 1965 Agreement is certainly the impetus for a battle over language. As I read the legal-e’s, it is clear that Japan intended to provide “grants” and “reparation payments” to Korea, including additional monies, as “LOANS”, upon request by the Korean Government, of $200,000,000.

    Here’s the kicker; all monies shall be allocated, by Korean recipients, to be used in the procurement of Japanese goods and services.

    Furthermore, Article II, Section 3 stipulates that. “no contention shall be made with respect to the measures…” and goes on to say that this agreement closes the book on past wrong-doings by Japan. This is clear.

    What Japan did to the Korean people was atrocious. Most modern democratic nations have bloody and embarrassing scares in their pasts.

    Where are we now?

    Hate is in the air. Like with America and the recent surfacing of racial tensions that were believed to have been put to rest in the ’60s, then the ’70s, then the ’80s, is broader, bolder, and deeper than ever before realized

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