To cope with Japan’s trade retaliation against South Korea amid drawn-out historical disputes between the two countries, President Moon Jae-in’s administration has put forward a set of response measures.
Japan last week decided to remove South Korea from a list of nations given preferential trade treatment, an apparent reprisal for a ruling by the South Korean Supreme Court in October awarding damages to South Korean victims of wartime forced labor. In July, Tokyo had imposed tighter regulations on exports to South Korea of hi-tech materials used to make semiconductors and flexible displays.
A package of measures disclosed by the Moon government Monday calls for, among other things, spending 7.8 trillion won ($6.4 billion) over the next seven years to nurture the country’s parts, materials and equipment sectors.
Efforts will be focused on securing a stable supply of 100 key strategic items in the coming five years by diversifying suppliers abroad and helping domestic firms acquire foreign rivals that possess advanced technology, in addition to promoting localized production. The government plans to ensure stable supplies of 20 such materials within a year.
In separate endeavors, the government is pushing for the early implementation of an extra budget that was passed by the parliament last week, allocating 273.2 billion won for measures to address Japan’s recent moves.
Surely, Seoul needs to mobilize all immediate means to reduce the impact on South Korean companies of Tokyo’s retaliatory steps.
But it would be a miscalculation to think that such stopgap measures can enable the country to overcome Tokyo’s trade retaliation altogether.
If Tokyo’s decision to strike South Korea off the whitelist of trading partners eligible for preferential treatment takes effect Aug. 28 as expected, Japanese exporters will need individual authorization, rather than fast-track approval, to export about 1,120 dual-use items to South Korea. It is feared that the restrictions will cause significant delays and disruptions in imports from Japan.
In particular, key items essential for the development of new industries, including lithium-ion batteries, carbon fiber and engineering equipment, are likely to be the targets of Japan’s expanded export controls.
It seems reasonable to conclude that Tokyo’s intentions may go further than reprisal over the forced labor issue and that its ulterior aim may be to undermine South Korea’s hi-tech industries, which are catching up with their Japanese competitors.
What Seoul needs to do is to deliver a measured response to Tokyo’s trade retaliation, which has come under increasing international criticism, and change or discard misguided policies that have dampened corporate vitality.
True, the toughened restrictions could also negatively affect some Japanese companies, as they might lose South Korean buyers.
But it seems likely that the South Korean economy will be hit harder by an escalation of tit-for-tat measures between the two countries.
Japan is in a position where it will have less difficulty finding alternative providers.
Moreover, it is far from guaranteed that Seoul’s plans to enhance localized production will go as smoothly as expected. Many South Korean firms could suffer severe losses before such efforts ever come to fruition.
At a nationally televised Cabinet meeting last week, Moon said Tokyo’s moves presented obstacles for the South Korean economy, but vowed “we will not lose to Japan ever again.”
If he truly wants to turn his rhetoric into reality, he should now focus on finding a diplomatic solution to the escalating row with Japan. This would reduce the fallout for South Korean companies, which are already struggling to cope with deteriorating conditions at home and abroad.
At the same time, his administration should make a fundamental shift from the ill-conceived policies that have increased burdens on companies. The South Korean economy will grow more sluggish, even aside from the stand-off with Japan, if the Moon government continues to adhere to its anti-corporate stance.
The government has pledged to ease safety and environmental regulations and apply the shorter workweek more flexibly to help facilitate the development of hi-tech parts and materials. Such measures should be expanded to a broader scope of industrial sectors on a permanent basis.
The Moon administration also needs to cut corporate taxes, curb steep wage hikes and resist excessive demands from labor groups to help boost corporate competitiveness and restore market vitality. Reckless spending on inefficient welfare and employment programs should be reconsidered, and part of the funds could be channeled into investments that would be more conducive to revitalizing the economy.
Turing a blind eye to Pyongyang’s renewed provocations, Moon said Monday that building what he called a “peace economy” through inter-Korean cooperation would be a way to counter external pressures such as Japan’s trade restrictions. But sticking to big concepts instead of focusing on concrete tasks will do nothing to help South Korea catch up with Japan economically.