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Japan drags business into politics with South Korea sanctions

The Tokyo-Seoul relationship stands to deteriorate further

| Japan
If forced, South Korea is likely to choose China.   © Reuters

Japan is not known for playing diplomatic hardball, hence the widespread surprise at its recent, brusquely-expressed imposition of economic sanctions on South Korea in retaliation to a recent South Korean court decision over wartime compensation claims.

Traditionally, the Japanese approach to political frictions has been to separate them from the logic of commerce. By slapping export restrictions on certain high-tech items critical to Korean manufacturing, the Japanese government is signaling that this twin-track approach can no longer be taken for granted.

In doing so, it is following precedents set by the two superpowers. The U.S. under President Donald Trump has used the threat of tariffs to squeeze concessions from China, Mexico and NATO allies unwilling to increase their military budgets and singled out Chinese tech company Huawei as a threat to national security.

China itself has long used economic muscle to pursue political goals. In 2010, it unofficially blocked exports of rare earths, minerals crucial for auto production, to Japan after an incident near the disputed Senkaku Islands. In 2017, it shut down the flow of tourists to South Korea in retaliation for the Korean adoption of an American antimissile system. Trade has already been weaponized in East Asia -- as, of course, has history.

Japan's spat with South Korea arose from the decision of its courts to allow alleged victims of forced labor in the wartime era to sue Japanese companies for compensation today. The Japanese side maintains that all such claims were settled in a 1965 treaty between the two countries.

"Apology fatigue" is clearly a factor in the sharp Japanese response, as is deep concern that the legal floodgates could be opened to all kinds of prior claims -- beyond South Korea. Targeted export restrictions are an astute device, as trade flows in the other direction are tiny and noncritical.

The rights and wrongs of this particular issue, the latest in a series of controversies about 70-year old events, are unimportant. Historical grievances do not create political conflict in today's world. Rather, it is the other way around.

A good counterexample is the lack of political heat between Vietnam and the U.S., which has not apologized nor been asked to apologize for its actions in a more recent war.

As it happens, Korean soldiers were also involved in the Vietnam War and have been accused of serious atrocities, but the Vietnamese authorities, in whose eyes South Korea is a valuable potential investor rather than a rival, have maintained silence on the subject.

The contrast with the Japan-South Korea relationship is obvious. The two countries have similar industrial structures and compete head-to-head in a wide range of sectors -- from steel to autos, from flat panel displays to shipbuilding. In theory, economic competition is a plus-sum game, but it is no coincidence that the rise of Samsung Electronics and the decline of the Japanese electronics industry happened at the same time.

Indeed, in Japan it is widely believed that the Korean company's astute poaching of Japanese engineers from Toshiba contributed greatly to its long domination of the market for flash memory semiconductors, vital to mobile phones, tablets and many other electronic devices. Today Toshiba, like Sharp, is a shadow of its former self.

Crucially, Japan and South Korea have very different geopolitical orientations too, stemming from their differing locations and economic scales. In a recent joint survey by Japanese NPO Genron and the Seoul-based East Asia Institute, people were asked which countries were economically important to their own country.

China was the top pick for South Korean respondents, the U.S. for the Japanese. This merely reflects reality. Exports to China are equivalent to 16% of South Korean gross domestic product, against less than 3% of Japanese GDP.

Human contact tells the same story. South Korean students in China are by far the largest group by nationality -- three to five times more numerous than Japanese students, though Japan's population is more than twice as large.

The Genron/East Asia Institute survey came up with some other interesting findings. Some 28% of Korean respondents believe there will be a military conflict with Japan, 38% view Japan as a military threat and 35% view economic growth in Japan as a threat to South Korea. The equivalent proportions on the Japan side are 9%, 12% and 20%.

Could the deterioration in relations between the two countries have implications for the future of the Korean Peninsula? Probably not. Any deal to alter current arrangement will either be agreed between the U.S. and China or will not happen at all.

However, in the currently unlikely event of a grand bargain that offers verified denuclearization in return for phased reduction and ultimate withdrawal of the U.S. military presence, the common threat would disappear. With it would go any remaining rationale for Japan-Korean cooperation.

With Japanese Prime Minister Shinzo Abe facing an upper house election later this month and South Korean President Moon Jae-in dealing with falling support rates and a shrinking economy, it is tempting to dismiss this latest iteration of Japan-Korean mutual distrust as the product of domestic political dynamics and/or "unresolved" historical issues.

That would be a misreading. It was only the coming of the first Cold War and the requirements of America's geopolitical strategy that brought them together in the first place. The rise of China and the looming possibility of a new Cold War changes all that permanently.

The first Cold War was strongly ideological and it seemed natural for countries with similar economic systems -- capitalist or communist -- to line up on opposite sides. In historical terms, though, that was an aberration. In previous centuries, geography and national interest were the driving forces, not economic principles, and this is likely to be the case again.

In the grand wrestling match between the U.S. and China, Japan knows which side it is on. South Korea would prefer to hedge its bets but as time goes on, that will become increasingly difficult. If forced, it is likely to choose China.

Peter Tasker is an analyst with Tokyo-based Arcus Research

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