The latest increase in tensions between Japan and South Korea has developed fears that the important global manufacturing supply chain for semiconductors could be disrupted and that’s multiplying the worries on an already slowing world economy.
The adjacent countries are part of a compact and tightly linked network of economies that witness the production of electronic goods such as smartphones and laptops. But earlier this month, Tokyo out of nowhere imposed tighter controls on one portion of that network: The supply of certain chemicals from Japan to South Korea. Those chemicals are used by Korean manufacturers to produce semiconductors, and are important for making components — including memory chips, microprocessors and integrated circuits — that can be found in many modern-day electronic products. Keeping in mind the widespread use of semiconductors, companies that test and make them are often seen as a parameter for the health of the global economy. Global sales of semiconductors grew 12.5% to reach $474.6 billion in 2018, according to research firm Gartner. Signs are guiding to falling sales this year with many large semiconductor companies slashing earnings estimates amid decreasing demand. Already, the U.S. and China are locked in a year-long trade war that has affected the global market. Now with tensions between Japan and South Korea also heating up, it could make things bad.
Japan announced on July 1 it would monitor exports of three chemicals to South Korea: fluorinated polyimide, resist and hydrogen fluoride. Those materials are used in the production of semiconductors and display screens. Tokyo cited “inadequate management” of the chemicals as a reason to impose restrictions. The pace breakers came into effect on July 4 and Japanese exporters must now seek permission each time they want to ship any of the three chemicals to South Korea. That process takes about 90 days.