South Korea vs. Japan: The Trade War trade wars undermine world's economy

This was the Week Trade Wars Went From Uncomfortable to Scary , after Trump vs China trade wars , this time it is Japan vs South Korea . In Korea #BoycottJapan went from a Twitter hashtag movement dissuading customers from Seoul to Busan from shopping at Uniqlo, Muji, Daiso or 7-Eleven stores to a full trade war with Japan . And this boycott movement, begins to hit the pockets of major Japanese brands. In a surge of patriotism, some 23,000 retailers decided to withdraw Japanese beer, condiments, cosmetics, and pens from their shelves while posting notices letting customers know they will no longer be selling or buying items made in Japan. According to South Korean media, the sale of Japanese beer has fallen 15.6 percent at major Korean supermarket chain E-Mart compared to last year’s figures. Meanwhile, sales of Korean beer have risen by 19 percent . Japan’s tourism outlook is also feeling the heat. South Korea sends in the second highest number of foreign tourists to Japan after China. Travel agencies preparing holiday packages tailored to South Korean patrons are being forced to discontinue tours altogether with the fall in demand. Asiana Airlines, which operates daily service between Seoul and Chitose airport in Hokkaido, is considering cancelling the route due to a 30 percent fall in reservations in August compared to last year. Hotels within the Jozankei onsen district in Sapporo, Hokkaido, which is typically popular among Korean tourists, reported a string of cancellations. The Jozankei Tourism Association expressed concern over the spread of the boycott, reporting a fall in lodging reservations in October . Top South Korean chipmakers could avoid some of the consequences by shifting production to China, but smartphone manufacturers who mostly make their displays in South Korea would need to make major adjustments to shift their production across the Yellow Sea. Moreover, offloading some chipmaking to their facilities in China carries its own risks given the still-burning U.S.-China trade war, as large South Korean companies in China are already working to shift some of their capacity to places like Vietnam. And then there's the lingering problem of Seoul's own relations with Beijing: In 2017, China instituted a tourist boycott and other economic measures on South Korea after the latter deployed the U.S. Terminal High Altitude Area Defense (THAAD) system. Today, ties between Beijing and Seoul are on the mend, yet they remain tenuous. Last Month Tokyo announced it would tighten restrictions on exports to South Korea of three materials used in smartphone displays and chips, a move that is likely to create major headaches for Seoul’s tech firms. Japan dropped South Korea as a preferred trading partner on Friday, escalating a dispute that threatens the global supply chain for smartphones and electronic devices. The decision to remove South Korea from a so-called white list means that Japanese exports to South Korea now require additional screening to make sure they are not used for weapons and military applications. The new restrictions go into effect August 28. South Korea was the only Asian country on the white list. Revoking its preferred status means the country will receive the same treatment as other Asian countries and territories, including Taiwan, Japan's Chief Cabinet Secretary Yoshihide Suga said Friday. South Korea's president called the decision "reckless" and promised retaliation. "If Japan — even though it has great economic strength — attempts to harm our economy, the Korean Government also has countermeasures with which to respond" President Moon Jae-in said Friday. A short time later, South Korean officials said they were taking steps to remove Japan from their own white list that governs trade in "strategic" items. Moon's ruling Democratic Party called Japan's decision an "all-out declaration of economic war on our country" in a tweet from its official account. South Korea is Japan's third-largest trading partner, buying about $54 billion worth of Japanese goods, including industrial machines, chemicals and cars. The standoff between the two countries started last month when Tokyo placed controls on exports of three chemical materials to South Korea. The materials are used to make computer chips, among other things. The move came as relations between the two neighbours hit a new low in their row over Japan’s use of forced labour during World War II. Tokyo has been angered by a South Korean court decision last year that ordered Japanese firms to compensate the victims of forced labour, as it believes the matter was settled by a 1965 treaty that normalized ties with the South. The specter of the world's three biggest economies and South Korea exchanging trade-policy blows is the last thing the global economy needs, and investors and consumers alike should be afraid in case the geopolitical wrangling unnerves markets. Markets had already been buzzing about slowing growth, with or without trade clashes. The ten-year synchronized global expansion since Lehman Brothers collapsed was already looking tired at the start of 2019, and the bill was becoming clear. S&P Global Ratings, for example, pointed out that world debt jumped had 50% over the past decade to an eye-popping $178 trillion. Most pin the blame for this tag-team dynamic on Trump. His political brand is confrontation, and his waning fortunes at home may only fuel bigger clashes abroad, particularly in Asia. Xi, after all, has made a mockery of Trump's assertion that "trade wars are good and easy to win." There is nothing good about the way his taxes on China, steel and aluminum are raising prices for American consumers. Nor do economists find much good in Trump's $16 billion bailout for farmers suffering from those tariffs. Think about it: Washington is borrowing from Beijing through U.S. Treasurys to finance corporate welfare needed to soften the blow from a trade war against China. Trump's latest tariffs may stem from a realization that he is getting outmaneuvered by Xi team. It is also a reflection of troubles in Washington, where impeachment efforts are heating up. Trump is desperate for a win on the global stage. Any will do, as North Korea's missile tests make a mockery of Trump's purported bromance with Kim Jong Un. This puts the E.U. in harm's way. In recent months, Trump previewed $11 billion of tariffs on EU goods and has lashed out at everything from imports of cheese to aircraft parts. He is also holdings threats of 25% levies on imports of cars and auto parts. That would upend supply chains from Detroit to Germany to Japan. All of this is muddying the outlook for global growth, corporate profits and investment, and altering everything investors thought they knew about the direction of asset markets. It suggests even more aggressive monetary easing around the world is to come. When you add these trade disputes to the world's other problems -- Japanese exports down seven straight months, North Korea gaining in aggression, Brexit careering out of control -- it truly seems like Murphy's Law is having its day.







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