Time for co-prosperity

Japan’s export restrictions on essential materials needed to produce semiconductors in Korea caused bilateral relations to rapidly freeze from 2019. After Tokyo took the action in response to the Korean Supreme Court’s ruling in 2018 against the wartime forced labor, Japan’s direct investment in Korea shriveled 57.6 percent for three years from 2019 to 2021 compared to the previous period. During the same period, Korea’s investment in Japan shrank 42.9 percent. After Japan’s retaliation, Korea rolled up its sleeves to produce materials, parts and equipment for chip production on its own.

In January 2021, a year and half past Japan’s export ban, the Ministry of Industry and Trade patted itself on the back for the stable supply of the three core items for chip production. Korea increased domestic production of fluorinated polyimide, changed suppliers of photoresist from Japan to Europe, and desperately upped the production of hydrogen fluoride enough to export it to China today. But the reality is quite complicated.

According to the Korea International Trade Associations, while the share of Korea’s import of hydrogen fluoride from Japan decreased from 41.9 percent in 2018 to 7.7 percent in 2022, the share of import from China soared from 52.0 percent to 80.1 percent during the same period. For photoresist, Korea relied on supplies from Japan’s joint venture company in Belgium. Due to the higher transportation cost, the price of the photoresist from the company in Europe was 5.4 times higher than from Japan. That was not a win-win game. Instead, China and Taiwan reaped the reward.

Fortunately, Korea can put the serious disadvantage behind from now after the summit between President Yoon Suk Yeol and Japanese Prime Minister Fumio Kishida in Seoul over the weekend. Japan took up 24 percent of the global chip materials market in 2021, No. 1 in the world. Cooperation with Japan is needed to strengthen the competitiveness of our semiconductors.

Korea also needs to increase trade with Japan. Its trade with Japan accounted for 15.7 percent, in second place, in 2000, but it shrank to 6.0 percent, the fourth, in 2022. The share is even smaller than with Vietnam standing at 6.2 percent. Despite such obvious advantages in trade, the bilateral trade was lackluster over the past few years.

Korea and Japan also can cooperate in the cutting-edge industry and sciences such as space, quantum and bio, not to mention jointly finding solutions to the low fertility rate and fast ageing population. Economic organizations in Korea have welcomed the restoration of the “shuttle diplomacy” between the two leaders. We hope the two countries move forward for their next generation.