Japan’s ‘bark worse than bite’ in South Korea trade spat: Citi

Bloomberg

Japan’s trade curbs on South Korea have so far been a case of “the bark was worse than the bite,” with only limited fallout for South Korea’s economy, according to Citigroup Inc.
Japan’s tighter scrutiny of exports of three key materials used in the chip industry and Tokyo’s removal of its neighbour from a list of trusted trading partners have had little impact on South Korea’s imports of industrial and capital goods, Citigroup economists Marie Kim and Jeeho Yoon wrote in a report. The moves have, however, spurred South Korean efforts to reduce economic reliance on Japan, the analysts wrote.
“Ironically, we feel that this tension rather brought in positive implication to the Korean economy, albeit small,” the economists wrote. Since Japan began applying trade pressure, South Korea’s government has encouraged domestic production of key manufacturing items and boosted spending on research and development in the 2020 budget, according to the report.
Meanwhile, South Korean boycotts have led to a plunge in sales of Japanese consumer goods in the country and a decrease in tourists to Japan, who may have decided to travel domestically instead, according to Citi.
The spat between the two neighbouring countries has its roots in a dispute over Japan’s colonial past. Tension escalated in July when Japan tightened export controls on chemicals used by South Korean companies to make chips and displays. Tokyo then removed South Korea from its list of trusted trading partners.
South Korea responded by stripping Japan from its own list and announcing a planned withdrawal from an intelligence-sharing pact. With intel pact set to expire on November 23, the two countries’ defense chiefs discussed a potential extension at an “in principle” level, Yonhap News reported.