Japan’s export restrictions on South Korea from an economic security perspective: What have Japan and South Korea gained and lost?

Economic security and economic statecraft

In the field of international political economy, diplomacy, military, and security have been categorized as “high politics,” while the economy has been seen as “low politics.” However, in recent years, “economic security,” which combines the two, has been attracting attention. However, the Japanese term “keizai anzen hosho” does not have a clear, single definition, and is a direct translation of the English term “economic security.”

I am currently conducting overseas research as a visiting scholar at the Weatherhead Center for International Affairs at Harvard University, where economic security is a frequent topic of discussion. Seminars on economic security are among the most popular events, not only at Harvard but also at academic conferences across the United States.

In the United States, “economic statecraft” has become a key term in relation to economic security, and I have the impression that this term is used more as a technical term. It is difficult to translate directly into Japanese, and is often referred to in academic papers as “economic statecraft.” The meaning is something like “pursuing geopolitical national interests through economic means.”

In any case, the central idea of economic security and economic statecraft is to protect regional security and national interests through economic policy, and there is debate over which of these is the more comprehensive concept.

One of my specialties is the comparative analysis of economic security between Japan and South Korea. When comparing these two countries, which are both trading nations and economic powerhouses, we can see an interesting difference in how the idea of economic security became popular in both countries.

First, in the case of Japan, the collapse of global supply chains during the COVID-19 pandemic was forefront. For example, if domestic companies with production bases in China are unable to produce their products owing to the impact of COVID-19, this will be a significant blow to the Japanese economy as well.

Under the challenge of how to revitalize the resilience of global supply chains, the Japanese government has implemented policies, including the establishment of related laws on economic security.

On the other hand, in the case of South Korea, prior to the COVID-19 pandemic, political conflicts arose between the South Korean and Japanese governments over the issue of wartime laborers during the period of Japanese colonial rule, which escalated into conflicts in the fields of economy and security.

As I will explain in more detail later, during this conflict, the Japanese government’s policy towards South Korea was viewed within South Korea as Japan threatening South Korea’s national interests through economic means, which led to a lively debate on economic security.

What is the “weaponization of interdependence” using economic relationships?

To understand economic security, it is necessary to understand the concept of economic interdependence in international relations theory. Derived from the theory of interdependence advocated by American international political scientists in the 1970s, it can be simply described as the assertion that if nations interact (economically) and become more dependent on each other, world peace will ultimately be established through democracy and a liberal market economy.

Taking Japan and South Korea as an example, interdependence in the semiconductor sector can be cited. As the Japanese semiconductor industry rapidly lost its competitiveness in the 1990s and South Korea was catching up, domestic semiconductor materials and manufacturing equipment companies, whose domestic demand had plummeted, needed alternative supply destinations. As a result, South Korea’s semiconductor industry became reliant on supplies from Japan, while conversely, Japan’s semiconductor materials and equipment industry came to depend on demand from South Korea.

The economic interdependence formed in this way provides common benefits to the countries involved and increases the costs and risks associated with reducing that interdependence. Therefore, it has been considered that the interdependence politically promotes cooperation between the two countries.

However, in recent discussions on economic security, the concept of weaponized interdependence, which turns economic interdependence on its head, has gained attention.

In fact, the issue came to the surface in South Korea with Japan’s export restrictions on South Korea in 2019. With the inability to import semiconductor materials from Japan, the production of semiconductors for sale both domestically and abroad was pushed into a crisis.

The origin of the matter dates back to October 2018, when the Supreme Court of the Republic of Korea (equivalent to Japan’s Supreme Court) issued a ruling ordering Japanese companies to pay compensation for the suffering of forced labor in relation to so-called wartime laborers mobilized by the companies on the Korean Peninsula under Japan’s colonial rule. The Japanese government has expressed strong concern regarding the ruling, as it maintains the position that issues related to state and individual claims were resolved by the Agreement on the Settlement of Problems concerning Property and Claims and on Economic Co-operation between Japan and the Republic of Korea (1965).

Amidst this situation, in July 2019, the Japanese government strengthened export controls on three semiconductor materials (fluorinated polyimide, resist, and hydrogen fluoride) to South Korea. The government effectively implemented export restrictions by removing South Korea from the white list of countries that receive preferential treatment for exports.

In South Korea, this move was perceived as retaliation for the wartime laborer issue, leading to a deterioration in sentiments towards Japan and an expansion of the boycott against Japanese products. At that time, the Moon Jae-in administration similarly removed Japan from its white list and filed a complaint against Japan’s measures with the WTO. This means that they took equivalent measures in response to the substantial economic sanctions.

At that time, the U.S. newspaper The Wall Street Journal argued that Japan had weaponized trade, sparking significant debate. This series of exchanges can indeed be seen as an example of weaponization of interdependence that utilizes economic interdependence.

The Japanese side argued that the reason for the export restrictions lies in security concerns regarding South Korea, while the South Korean side completely viewed it as the weaponization of the economy as retaliation for historical issues.

The gains and losses for South Korea from Japan’s export restriction

Japan’s economic sanctions against South Korea ultimately escalated into issues of security within the East Asian region.

In August 2019, in response to the Japanese government’s reference to security issues with South Korea as a basis for its sanctions against South Korea, the South Korean government announced that it would not extend the GSOMIA (General Security of Military Information Agreement) between Japan and South Korea. Since GSOMIA serves as a foundation for the multilateral sharing of military information on North Korea, the decision not to renew it presents a critical security issue not only for East Asia but also for the United States.

Until then, the United States had been observing the exchanges between Japan and South Korea from a distance, but finally took action, dispatching the Secretary of Defense and other officials to persuade the South Korean side otherwise. In response, the South Korean government announced a suspension of the decision to terminate the agreement. Since then, however, it has taken as many as four years for South Korea to withdraw its complaint to the WTO and return to the status of white list country (renamed “Group A” as of 2024), leaving a major source of trouble for both countries’ diplomacy.

I believe that the exchanges between Japan and South Korea during this period, where they continued imposing sanctions on each other almost in a retaliatory manner over historical issues, went beyond a bilateral dispute and became a case that threatened the security of the entire Asia-Pacific region, involving players such as the United States, China, and North Korea. And I think we should calmly reflect on what both countries gained and lost as a result of this.

The fact is, economic sanctions did not lead South Korea to respond in the way Japan had expected. Rather interestingly, it actually served as an opportunity for South Korea to break away from economic interdependence and shift towards domestic production of semiconductor materials.

In Korean academic papers, the phrase “South Korea decoupled from Japan” is often used as a result of this series of conflicts. In other words, it is argued somewhat paradoxically that as a result, South Korea’s economy became independent from Japan, and that the Japanese government, in a way, made a significant contribution to the development of South Korea’s semiconductor industry.

On the other hand, Japan was left with the challenge of maintaining its market share in South Korea, a major export destination for semiconductor materials. Currently, there are moves by the Japanese government to attract the factory of Taiwanese semiconductor manufacturer TSMC to Kumamoto Prefecture by providing massive subsidies, but it is necessary to assess the economic losses that Japan has incurred during this period.

As for Japan-South Korea relations, with the end of the Moon Jae-in administration, the current administration under President Yoon Suk-yeol, a conservative government, is working to improve relations between the two countries.

The president of South Korea has a much greater influence over the administration and public opinion compared to the Prime Minister of Japan, but as the five-year term nears its end, there is a tendency for the president to become a lame duck (a state of losing political momentum and influence). In that sense, I would like to focus on how well the Yoon administration, now entering its final phase, can build a good relationship with the Japanese government before the end of its term.

The circumstances surrounding South Korea and China’s hope to join the CPTPP

I am also closely watching Japan’s leadership in the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and the prospects for South Korea’s participation.

Japan led the CPTPP, a “TPP without the United States,” which went into effect in 2018. However, South Korea, which is not a TPP member, currently needs the consent of all 12 member countries, including the United Kingdom, to join the CPTPP.

During the Moon Jae-in administration, when Japan-South Korea relations were said to be at their worst since the end of World War II, it was not possible to obtain the consent of Japan, which leads the CPTPP. On the other hand, while the Yoon administration is building a good relationship with Prime Minister Kishida and raising hopeful expectations, in reality, there are still no clear prospects for achieving membership.

One reason for this is that President Yoon has a very weak political base domestically. In addition, the CPTPP is a very high-level agreement often referred to as a “21st-century FTA (Free Trade Agreement),” and since there are no exceptions regarding tariffs for certain items, as seen in bilateral FTAs, there is strong opposition from the farming community in South Korea.

Furthermore, South Korea has the North Korean issue, so even though it is politically dependent on the United States, it is also strongly dependent on China in terms of the economy. While requiring military support from the United States, South Korea cannot afford to lose China’s vast market. South Korea is in a very delicate position of having to strike a good balance between the so-called West and China.

Additionally, with the United States withdrawing from the TPP, China, aiming to take a leading role in the region, is seeking to join the CPTPP, but it is said that some countries, such as Japan, are opposed to this. In the context of economic security, large-scale economic and trade agreements form political connections, which are closely linked to the security of the contracting countries and regions. While trends in the United States are certainly important, we cannot underestimate the impact of the historical issues that Japan and China face.

In the modern era of global economic activities, political issues such as historical perceptions can escalate not only through diplomacy but also through trade and economy, ultimately leading to threats to the security of the related countries and regions. To prevent such errors and failures, I believe we need a broad perspective aimed at long-term benefits and stability.

* The information contained herein is current as of May 2024.
* The contents of articles on Meiji.net are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.

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