As Asian markets slid Friday after U.S. President Donald Trump said he’ll impose more tariffs on China, another trade spat between Japan and South Korea is escalating.
Japan confirmed Friday it will remove South Korea from a list of trusted export destinations, which would expand the number of materials used by South Korean makers of OLED screens, televisions and semiconductors that are subject to restrictions. The new list comes a month after Japan imposed export curbs on three key materials used in Korea’s chip industry.
“Some of the products to be removed from the white list could become a problem, such as blank masks or shadow masks — products that Japanese makers monopolize,” said Yoon Joon-won, a fund manager at HDC Asset Management. “Many people don’t expect Samsung will shut down its plants because of this, but if the removal from the white list takes effect, there will be a Korea risk premium for investors.”
South Korea’s two tech giants, Samsung Electronics Co. and SK Hynix Inc., are already struggling with the earlier export restrictions. Shares of Samsung fell as much as 2 percent in Seoul on Friday, while SK Hynix dropped as much as 3 percent.
Tensions between the two countries have been flaring over whether Japan has sufficiently compensated Koreans who suffered under Japan’s 1910-45 colonial rule of the peninsula.
On the flip side, South Korean suppliers have been benefiting from the trade scrap. Samsung will keep pushing ahead with a plan to use more local suppliers, even if the dispute with Japan is resolved, said Kim Kyung-min, an analyst at Hana Financial Investment.
Even so, most of the top 20 items needed for South Korea’s technology industry — such as scrap steel, medical equipment, plastics and some chemical products — are highly dependent on Japanese suppliers, according to SK Securities. Another major worry is chipmaking equipment, which is dominated by Japanese firms, the broker said.
“The problem is most of the components and materials that we need are heavily dependent on Japanese suppliers,” said Kim Hyo-jin, strategist at SK Securities. “Korean products imported into Japan are not that value-added or critically important for Japanese makers.”
The latest trade tensions add to the problems facing South Korea, which is already ailing from the U.S.-China trade war. The export-driven economy, a bellwether for global trade, posted a slump in exports for July, for the eighth straight month, marked by a decline in demand from China and falling prices for semiconductors.
“A comprehensive resolution between the two countries seems a long shot,” Marie Kim, an analyst at Citigroup Inc., wrote in a note Thursday. “We still think the two countries would reach some resolution, even partially, by the first quarter of 2020 at the latest. In the meantime, the negative impact could hurt not only specific industries but spread to other industries.”
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