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Asia-Pacific

Beginning of Japan – South Korea ‘Trade Tension’?

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Japan announced export restrictions to South Korean on high-tech chemicals used in chip and smartphone production starting July 4th. This could have an impact on major semiconductor and display production companies in Korea.

 

Although South Korea’s imports from Japan are on a declining trend, the key restricted products: resists (for semiconductor), hydrogen fluoride (used as semiconductor etching gas) and fluorinated polyimide (for flexible OLED displays) are ones that South Korea relies heavily on Japanese supply.

 

A long and bumpy process, but Citi analysts think the countries could work towards a positive outcome: Sensitive colonial-era related issues could impede negotiations. Without a resolution, negative impact could spread to Japanese companies and economies in general, although to a lesser degree than South Korea’s.

 

Short-term impact on South Korea is likely limited: First, the restriction could slow down the process, but not fully ban imports. Second, high levels of semiconductor inventory would provide some cushion for the time being.

 

Worse-case could see disruptions to South Korea’s supply chain and ripple effects in the long-term: Long (or no) discussions could lead to a significant negative impact to GDP as a result of semiconductor production disruption. The extent of the impact could vary depending on the availability of domestically produced goods.

 

 

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