Getty Images

How the Japan vs. South Korea Trade Feud Impacts the Electronics Supply Chain

Aug. 12, 2019
As the two countries address a long-standing trade feud, their actions could have both negative and positive impacts on the global electronics supply chain.

As electronics buyers keep a watchful eye on the ongoing trade disputes between the U.S. and countries like China and India, another potential roadblock is now simmering as Japan and South Korea dust off a long-standing issue that threatens to impact the electronics supply chain. According to the Wall Street Journal, as two of the world’s leading tech producers, Japan and South Korea have been embroiled in a trade dispute for years.

The issue resurfaced in July, when Japanese Prime Minister Shinzo Abe’s government decided to require government approval for each shipment of key materials—namely fluorinated polyimide, which is used in smartphone displays, and resists and hydrogen fluoride, used to make semiconductors—to South Korea, Nikkei Asian Review reports. Previously, companies could obtain comprehensive approval that allowed them to export without screenings of individual shipments, for a set period.

Focused on the efficient delivery of components, chemicals, and materials, the electronics supply chain relies on the two nations, which produce semiconductors and displays used by companies like Apple Inc., Inc., and Microsoft Corp.

“The latest supply-chain rupture centers on a festering spat between Tokyo and Seoul that is driven more by politics than profit,” Timothy W. Martin writes in “An Old Feud Between American Allies Rattles Tech Giants’ Supply Chains.” “The trade rift opened early this month with Japan tightening export controls on three chemicals essential for memory chips and phone displays, fields where South Korea produces most of the world’s supply.”

What’s Going On?

Right now, Martin says Tokyo is considering broadening the trade curbs for roughly 1,000 more Japan-made products that flow into South Korea—a move that would impact nearly every product Japan exports to the country. 

“Global supply chains are increasingly coming up against nationalism, revealing how tech’s manufacturing interdependence has created vulnerabilities in the delivery of smartphones, computers, and other electronics,” Martin writes. The latest spat has set off alarms across the tech world. South Korean production delays, even for several weeks, may threaten the availability of Apple’s iPhones, Amazon’s cloud-computing data servers, and the inventory of many internet-connected gadgets.

Any further supply-chain constraints could cause prices of memory chips to significantly increase more, while some U.S. electronics companies—particularly those with operations in China—could face shortages,” IHS Markit’s Rajiv Biswas told WSJ. “China and the U.S. could be affected.”

On a positive note, the Japanese government gave the green light for the export of a semiconductor manufacturing material to South Korea in early August—the first such approval since the tightening of controls last month, according to Nikkei Asian Review. 

The Ministry of Economy, Trade, and Industry determined after a review that there is no risk the material will be used for military equipment. Hiroshige Seko, the trade minister, announced the decision and stressed that Japan “will not misuse” its export curbs. He also cautioned that weaknesses in South Korea’s export management—which Japan claims could result in the materials being used for weapons—have not been resolved.

The Potential for Positive Impacts

Approaching the issue from a different angle, CNBC says that the Japan-South Korea dispute could favorably impact memory chip prices. Quoting Sanford C. Bernstein’s Mark Newman, the network says Japan’s stricter restrictions on exports could push manufacturers like Samsung to seek out alternative sources of supply.

“They need to qualify those alternatives,” Newman said, referring to the process of selecting the right supply chain partners to buy materials from, and to ensure they meet Samsung’s quality control standards. That process normally takes 2-3 months and may result in a reduction of Samsung’s memory chip inventory. “There’s a potential the production could go down for a few weeks,” he said, “which would have a significant positive impact on memory prices if that did ever happen.”

About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.

Voice your opinion!

To join the conversation, and become an exclusive member of Supply Chain Connect, create an account today!