A game of chicken

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A game of chicken

Lee Jong-wha
The author is an economics professor at Korea University.

Last week, I went to a bank to exchange Korean won for Japanese yen before going to Japan to attend a conference. The teller asked me if I was sure about visiting Japan at such a sensitive time. Economists I met at the conference jokingly asked if it was okay for me to visit Japan when Korea-Japan relations were so bad. I am worried the discord would spread to people-to-people exchanges in general.

The movie “Rebel Without a Cause” starring James Dean features a game of chicken. As cars race towards a cliff, whoever jumps out last wins. In another variation of the game, two cars race towards each other, and the one that turns away first loses. If neither wants to lose, the cars will crash — and both drivers will be injured.

The Korea-Japan spat resembles a game of chicken. Last year, the Supreme Court of Korea ruled that victims of wartime forced labor have the right to claim compensation, and while Japan initially demanded to bring the case to third-party arbitration according to the 1965 Basic Treaty, Tokyo ended up putting export restrictions on materials used to make semiconductors and displays as retaliation. On Aug. 28, Japan removed Korea from its so-called white list of trading partners that get preferential treatment for exports. Korea brought Japan’s unfair export regulations to the World Trade Organization and responded by also removing Japan from its own white list on Sept. 18. The General Security of Military Information Agreement (Gsomia) between Korean and Japan is not to be extended as well. Disputes over history are expanding to economic and military affairs. I don’t know how the situation will be when Gsomia ends at the end of November and assets in Korea of Japanese companies responsible for forced labor are liquidated next year.

Korea-Japan discord is already affecting economic exchanges between the two countries. Coinciding with a slowdown in global economic growth, Korea’s export to Japan in August decreased by 6.2 percent from the same period a year earlier. Imports from Japan also decreased. Imports of Japanese cars went down by 57 percent and beer imports decreased 95 percent compared to the same month last year. The number of Korean tourists to Japan declined, and some Japanese companies decide to leave Korea.

Korea and Japan are geographically close and their industrial structures are closely intertwined. Both countries enjoy benefits from trade and investment. Korea is Japan’s fourth largest export market, and Japan is Korea’s fifth largest export market. In the global supply chain, Korea and Japan play very important roles. In terms of the world’s biggest exporters, Japan is the fourth and Korea is fifth, after China, the United States and Germany.

With China and the United States engaged in a trade war, the world is watching the trade dispute between Korea and Japan with worry. Korea and Japan have had leading roles in free trade on the global stage. But now the two countries are going against the international trade order and hurting the global economy with punitive trade retaliations. Japan is more responsible for starting the retaliations, but Korea cannot avoid criticism for fanning the dispute.

There is still a big gap in economic power between Korea and Japan. Korea’s GDP is one-third Japan’s. Japan is still dominant over Korea in science and technology and international politics. Korea is not so weak that it must submit to Japan’s unfair demands, but Korea may suffer greater economic damage if bad retaliations continue. With signs of a global economic slump, risks for Korea’s economy have grown. If geopolitical uncertainty in Northeast Asia grows due to the Korea-Japan dispute, it could negatively affect security.

President Moon Jae-in said at an economic advisory meeting in August that trade retaliation is a game in which everyone loses and no one wins. He is right. Rather than continuing retaliatory measures, solutions need to be found in negotiations. It would be best to find solutions to the forced labor issue, which is the root of the row, and retract all trade and diplomatic retaliations. While Japan needs to be persuaded to compensate the forced labor victims, Korea can seek a way to ask for accountability without asking for Japan’s monetary compensation based on “higher moral ground.”

It would be best if leaders of the two countries sit face to face to find solutions. At this juncture, both countries believe nothing will be resolved even if they meet. But if politicians, economic groups and experts from the two countries make efforts, the two leaders can meet and seek solutions.

If you wait until the last moment in a game of chicken, you may win the game — but lose your life. In “Rebel Without a Cause,” a strap on a jacket sleeve gets caught, and the driver goes over the cliff with the car. The Korean government needs to prepare appropriate exit strategies while responding to Japan’s unfairness. I hope a reversal can be made within the year.

JoongAng Ilbo, Sept. 19, Page 31
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