A week ago, Tokyo and Seoul seemed two proud and determined governments, coming to policy blows in the name of national honor and economic equity. Now, Asia's second and fourth biggest economies are victims of a Chinese devaluation in response to Donald Trump's trade war.
I doubt Japanese Prime Minister Shinzo Abe has phoned South Korea's Moon Jae-in to compare notes. But their economies will arguably experience the worst collateral damage as Trump's tariffs ricochet through China's economy. The knock-on effects have only just begun, not only in North Asia but throughout the Asia-Pacific region.
On August 5, Beijing allowed the yuan to breach the psychologically important mark of seven to the dollar for the first time since 2008. It was impossible to ignore the likelihood that President Xi Jinping was countering his U.S. counterpart's latest tariff threat, a 10% tax on a further $300 billion of mainland imports starting September.
Within hours of the yuan breaching seven, the U.S. Treasury labeled China a "currency manipulator" for the first time since 1994.
If there were ever an example of "fake news" in economics circles, it is this largely symbolic designation. Beijing spent the last two and a half years supporting the yuan, not devaluing it, to placate America's protectionist-in-chief. The currency of a giant, debt-plagued developing nation with sub-$10,000 per capita income facing a trade war should be bleeding capital. The slowest growth in 27 years, meantime, would seem a sell sign for punters everywhere.
The irony, of course, is that Trump just gave Xi a greenlight to devalue without guilt. The 1.3% drop in Chinese exports in June year-on-year suggests China's GDP growth of 6.2% in the first quarter could be its highest level for 2019. A weaker exchange rate could be just the thing to revive the all-important export engine.
Yet it is the last thing Japan, Korea and slowing economies in Southeast Asia need in the second half of 2019.
The good news: so far, the People's Bank of China is not allowing the yuan to fall precipitously. Xi's government wants to avoid panicking world markets already on edge. It would also prefer to avoid any further escalation by Trump and the anti-Beijing advisers in his orbit, including Peter Navarro, co-author of Death by China.
The bad news: the yuan falling to weaker than seven, which suggests the U.S. and China have lost all hope of a trade deal, is a direct blow to the competitiveness of its Asian peers.
This "worsening of U.S.-China relations will be a major negative for economic confidence and market sentiment for the rest of the year," said Arthur Kroeber of China-focused Gavekal Research.
The situation is already bad for Korea, and this makes it worse. Moon's economy is bearing the brunt of China's slowdown: in July, Korean exports to China fell 16.3%. China-bound shipments of semiconductors dropped more than 28%.
When Korean growth is slowing, youth unemployment is 10.5% and inflation is a Japan-like 0.6%, exchange-rate headwinds are decidedly unwelcome.
The same goes for Abe's Japan, where real wages just fell a sixth straight month in June. That is a blow to Abe's nearly seven-year reflation effort, one largely driven by a weaker yen. Japan's currency is now surging as investors seek refuge from Trump versus Xi theatrics.
The yen's 3% rise this year reduces the odds Japan Inc. will fatten paychecks heading into 2020.
Markets are abuzz with speculation that the Bank of Japan and Abe's Ministry of Finance will cap the yen, although the last thing Team Abe wants is to join China in the currency-manipulation ranks.
Even if China is threatening to "weaponize" its exchange rate, as Julian Evans-Pritchard of Capital Economics puts it, Japan prefers tamping down tensions ahead of U.S. trade talks.
So do leaders in Southeast Asia. While currencies in Indonesia, Malaysia, Thailand and elsewhere are no longer pegged to the dollar, many nations maintain a "soft" link -- a preferred range that supports local industry. All bets are off if Trump actively weakens the dollar, creating a tug-of-war with China that leaves Asian peers off balance.
The trade war is damaging global demand too, as the drop in oil prices below $54 a barrel -- bear-market territory -- signals. It is ominous for resource-dependent Indonesia and Malaysia as both Indonesian President Joko Widodo and Malaysian Prime Minister Mahathir Mohamad have been hoping to use export proceeds to pay down government debt and finance investments in education and training.
A weaker yuan reduces China's purchasing power, which augurs poorly for growth from Singapore to Vietnam to Australia. The immediate concern is uncertainty, said Piyush Gupta, chief executive of Southeast Asia's biggest bank DBS Group. As he told CNBC, the trade war "creates a degree of lower confidence" that results in "animal spirits in the region coming off."
But a sliding yuan also makes Vietnam's factories less competitive. It makes Thailand's beach resorts and Singapore's shopping districts less affordable for Chinese travelers. It ups the pressure for more rate cuts in the Philippines, Indonesia and Malaysia. It makes the iron ore, copper and other resources on which Australia relies more expensive for Chinese companies.
Abe and Moon, meantime, are suddenly on the same page as market intrigue tears up the script for both their economies. Developing Asia is right there with them, too.
A currency war, on top of a trade war, increases the odds of 1997-like competitive devaluations. This is not another regional crisis, but a shock Asia hardly needs in an already turbulent year.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."