Bloomberg Businessweek - USA (2019-12-23)

E C O N O M I C S

35

Bloomberg Businessweek December 23, 2019

Edited by
H.MARK Cristina Lindblad

WEIDMAN/ALAMY

Korea’s$1.6trillionexport-driveneconomy.Theyare

utilizedintheproductionofAppleiPhones,Dell lap-

tops,anda broadrangeofSamsungdevices.

Intheweeksthatfollowed,Japanalsoremoved

South Korea from a so-called white list that accorded

it preferential treatment on exports of materials

deemed sensitive because they have military as well

as civilian uses. These maneuvers are part of a global

trend in which trade and investment rules are being

weaponized in disputes between economic or geo-

political rivals—the most obvious example being the

U.S.-Chinaconfrontation.“Oncecountriesgodown

theroadofusingtradepolicyasa waytoincrease

theirgeopolitical influence, it sets a precedent that

could be quite harmful to trust in the supply chain,”

says Shaun Roache, chief Asia-Pacific economist at

S&P Global Ratings.

The conflict between the two Asian nations harks

backtoa 1965treatythatwassupposedtoputan

endtoallKoreanclaimsagainstJapaneseparties

originatingfromtheyearsofthe occupation, which

lasted from 1910 until 1945. Yet Korean courts have

ruled in multiple cases over the past decade that

Japanese companies must compensate Korean work-

ers forced into labor during that period. Japan’s

move to restrict exports came six months after one

Korean court approved the seizure of a Japanese

steelmaker’s assets in Korea, a ruling that threat-

ened to establish a precedent.

Fluorinated polyimide, hydrogen fluoride, and

photoresist make up only a fraction of Japan’s

$55  billion a year in exports to South Korea, yet they

are integral to the consumer-electronics industry.

Fluorinated polyimide is a plastic film that’s used

as an underlying layer in the screens on mobile

phones and other devices. Japan supplies 90%

of the material for this use, according to Display

Supply Chain Consultants, a market-research

group. A key buyer is Samsung Display, a unit of one

of South Korea’s leading chaebol, the sprawling

Japaneseexportcurbshaveexposeda

vulnerabilityin SouthKorea’sdevelopmentstrategy

Think of them as weapons of mass disruption.

Three ingredients crucial to the global supply chain

for smartphones and semiconductors are caught up

in a diplomatic wrangle between Japan and South

Koreawhoseoriginsdatetolongbeforeeither

countryhadtransformeditselfintoa consumer-

electronics powerhouse.

In July authorities in Tokyo began requiring

Japanesebusinessestoapplyforlicensestoexport

fluorinatedpolyimide,hydrogenfluoride,and

photoresist—a liquid used by semiconductor mak-

ers to imprint silicon wafers—to South Korean cus-

tomers, a process that can take 90 days or more.

The three chemicals are essential inputs in the

manufacture of memory chips as well as TVs and

other types of displays, which are pillars of South

● A photoresist used to

process circuit boards

The Chemicals

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