Why Are Japan and South Korea at Each Other’s Throats?

Two key U.S. allies in Northeast Asia are at loggerheads—not with China or North Korea but with each other. Since the beginning of July, when Japan restricted exports of critical materials used in South Korea’s high-tech industry, the two countries have waged an escalating war of words. The latest escalation came as South Korea ended a critical intelligence-sharing agreement with Japan. If it gets worse, the trade spat could end up permanently harming relations—as well as disrupting the global smartphone industry right on the verge of the long-awaited rollout of fifth-generation mobile technology.

What is going on?

On July 1, Japan announced that it would restrict the export to South Korea of three chemicals that are used to make semiconductors and flat screens—key components of smartphones and other advanced technology. Compared with the huge trade war between the United States and China, only a handful of products are affected. But Japan’s move is targeted: South Korea is the biggest maker of chips, and Japan is the biggest supplier of the chemicals used in their manufacture.

Two weeks after the spat began, there’s little sign it is easing up. A nearly six-hour meeting between Japanese and South Korean officials on Friday was so acrimonious that the two sides argued about what was said and even over how to characterize the meeting in the first place. On July 15, South Korean President Moon Jae-in warned that the trade fight has “broken the framework of economic cooperation” that has lasted half a century. Also on the same day, the World Trade Organization (WTO) took up South Korea’s complaint about what it calls unfair Japanese trade practices.

What is the trade fight about?

Officially, Japan began restricting exports of three chemicals—hydrogen fluoride gas, fluorinated polyimide, and photoresists—over national security concerns. Japanese officials have hinted that South Korea doesn’t adequately oversee the end use of those chemicals, which could also have military applications outside the technology field, even hinting that Seoul may have given North Korea access to some of the goods. South Korean officials deny those allegations and have investigated the import and use of the chemicals and found no wrongdoing.

“The Japanese accusations are very serious, but they have not provided evidence of any collusion between South Korea and North Korea so far,” said Céline Pajon, a Japan expert at the French Institute for International Relations (IFRI). “This is very worrying for the state of bilateral relations, in particular in the absence of any political willingness from the U.S. to mediate.”

So, what’s the fight really about?

Most experts believe the tech trade war is all about World War II—specifically, South Korean umbrage at Japan’s use of forced labor during the wartime occupation and what many in South Korea see as Japanese unwillingness to fully acknowledge the country’s wartime activities or make amends.

The immediate trigger for the trade war appears to be a South Korean court case late last year, which ruled that Japan’s biggest steelmaker, Nippon Steel, used forced labor during the war and ordered the firm to compensate some South Korean survivors with about $89,000 each. (The court seized shares that Nippon Steel has in a South Korean firm but hasn’t sold them yet.) 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. Japan argues that it has already made amends with a monetary settlement in the 1965 accord that reestablished diplomatic relations between the two countries, but South Korean courts don’t 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. Moon isn’t likely to cave on this particular issue: Two decades ago, he reportedly represented South Koreans seeking compensation from Japan for wartime labor.

But Abe has been largely unapologetic about Japan’s wartime past. He has angered South Korea over the issue of “comfort women,” Korean women who were forced into brothels for the occupying Japanese army. (That dispute flared up again late last year after Seoul abrogated a 2015 settlement on the issue.) And Abe has angered both South Korea and China over his insistence on sending ritual offerings to a controversial war shrine where more than a dozen Japanese war criminals are interred—sparking annual complaints from Beijing and Seoul that Japan is unrepentant about its wartime atrocities.

And while the two countries dredge up their decades-old disputes from the war, Japan and South Korea have also sparred more recently. In December, Japan accused a South Korean naval ship of using its radar to lock in on a Japanese plane; South Korea said the Japanese aircraft was improperly buzzing the ship.

Japan is suffering “Korea fatigue,” IFRI’s Pajon said. “They consider that Seoul is not making enough efforts to shelve history disputes in order to move forward.” And coupled with that is Tokyo’s view that Seoul is “lost for the cause,” as it moves closer to China and puts less reliance on the U.S. alliance, she said.

So why does the trade dispute matter?

In economic terms, the damage so far has been limited—South Korean firms are still using stockpiled chemicals to maintain production. But if Japanese trade restrictions last more than a few months, South Korean manufacturers will be hard-pressed to find alternative suppliers. That, warned the South Korean chip association, would lead to a chip shortage that could “bring a stagnation or regression of the world’s most cutting-edge technology.”

Worse, Japan could ramp up the trade pressure. South Korean officials said on Monday that they are bracing for Japan to take Seoul off the list of countries that enjoy streamlined trade in hundreds of potentially sensitive goods—which would ratchet up the fight from a handful of niche chemicals to huge chunks of bilateral trade.

(Update: On Friday, Aug. 2, Japan did just that, formally removing South Korea from the so-called white list of more than two dozen countries. The move will further slow trade between the two sides and Seoul promised retaliation of its own.)

More broadly, the tech fight between Japan and South Korea underscores the risks facing the global trading system thanks to the flagrant abuse of “national security” exceptions to impose trade restrictions.

The Trump administration has repeatedly used decades-old U.S. legislation to invoke so-called national security concerns to levy tariffs on imports of steel and aluminum and has threatened to do the same with cars and car parts—stretching the definition of national security to the utmost. The United States argues that it alone can determine what constitutes national security, essentially giving it carte blanche to throw up trade barriers that would otherwise violate WTO rules. Recently, though, the WTO has for the first time started to weigh in on these self-judging excuses, in which the Trump administration threw its support behind Russia and its trade fight with Ukraine.

When the Trump administration began invoking national security solely to protect domestic manufacturing industries and raise tariffs on friends and foes alike, trade experts warned that it was opening a “Pandora’s box” of trade abuses that could unwind decades of progress in tearing down barriers to global trade.

(Update) How is the fight getting worse? 

The dispute has moved far beyond trade and into critical military areas that may affect the alliance with the United States and the handling of North Korea. On Aug. 22, Seoul announced it was ending the General Security of Military Information Agreement, a pact hammered out, with considerable diplomatic effort, in 2016, when both countries were facing a worsening nuclear threat from Pyongyang. While both countries say this won’t affect their relationship with the United States, it will undoubtedly make presenting a united front against either North Korean or Chinese aggression even harder than before.

So what’s next?

The WTO will take up the Japan-South Korea dispute, but that could require a year or more to work its way through the dispute settlement process—even as the U.S. refusal to allow new judges to be appointed to the WTO’s appellate body is meant to paralyze the organization that oversees global trade disputes.

In the meantime, the United States is not exactly taking an active role in defusing the fight between its two main allies in Asia. Over the weekend, the top U.S. diplomat for Asia, David Stilwell, said Washington had no plans to mediate but wanted both countries to focus on the real regional threats and work out a solution.

“Trump is not interested in alliance management, and if nobody in the U.S. administration is willing to stand up and try to bring the parties back to reason, it is likely the relationship will continue to suffer,” Pajon said.