Japan-South Korea Dispute Not Top Concern for Trump Administration, Congress, Panelists Say

Speaking during an Oct. 16 panel hosted by the Korean Economic Institute of America and the Korea International Trade Association, panelists said the U.S. may not be seriously intending to mediate trade talks -- at least in the short term.

“If things were to go bad and prices were to go up because of a semiconductor shortage, maybe that gets the president’s attention,” said Troy Stangarone, senior director and fellow at KEI. “Because heading into an election, the last thing you want is consumer prices going up.”

The trade dispute stems from export restrictions Japan placed on products shipped to South Korea for three chemicals used to make high-tech goods (see 1907010020) Although the State Department insisted the U.S. has been active in trying to resolve the dispute (see 1909270031), panelists said they were skeptical.

“President Trump is inattentive and resolving this issue would require a degree of serious, sustained, personal involvement in diplomacy, for which he has shown no stomach,” said Marcus Noland, executive vice president of the Peterson Institute for International Economics and a former senior economist at the president’s Council of Economic Advisers. “As the impeachment effort here ramps up, his involvement in foreign affairs is likely to grow even more uneven and episodic.” Noland said he does not think the administration truly intends to help solve the dispute.

In addition, despite months of escalating tensions between Japan and South Korea, Capitol Hill has “not been paying a lot of attention to this conflict,” said Lori Prater, policy director and tax and trade counsel for Rep. Mike Kelly, R-Pa., a co-chair on the Congressional Caucus on Korea. Prater said she is just learning about the dispute.

“The whole trickle down effect hasn’t occurred yet,” Prater said during the panel. “The fact that I’m just finding out this is a relatively new issue, and my boss is the co-chair of the Korea caucus ... I think most people see this on Capitol Hill as a trade dispute between Japan and Korea. This is not something impacting us.”

But Prater said Congress wants to help. She said representatives from the Bureau of Industry and Security plan to brief Hill staff members today on the trade tensions and the export control issues at the center of the dispute. She said such meetings “rarely, rarely happen.” BIS did not respond to requests for comment.

“I think members on the Hill don’t quite know how we can be constructive,” Prater said. “So hopefully when the administration comes up tomorrow, they can give us some bread crumbs or some indication.”

The export restrictions on South Korea are set to have wide-ranging consequences that will impact South Korea’s entire economy, said Stephen Ezell, vice president of global innovation policy for the Information Technology and Innovation Foundation. In 2018, South Korea imported 90 percent of its photoresist -- one of the three restricted chemicals used in semiconductors -- from Japan.

“Korea’s semiconductor industry is highly and vitally dependent upon the imports of these chemicals from Japan,” Ezell said, adding that South Korea’s reserves are estimated to last three to six months. “If this dispute cannot be resolved, if the Korean semiconductor manufacturers cannot have a certain supply of these chemicals, prices are likely to increase, and that’s going to have downstream effects.” Ezell said that could impact Samsung’s ability to make phones, information technology goods and Korean exporters of capital goods, such as Kia cars and LG electronics.

“It is a concern for the entire export structure of the Korean economy,” Ezell said.