Japan and South Korea: Current Case of Abandoning Economic Principles

seul-south korea
Austin White via flickr // CC 2.0

In an escalation of tensions between Japan and South Korea, Tokyo has moved forward with regulations on exports of chemicals to Korean technological companies like Samsung. This move is seen as a political calculation, given recent disputes of trade and negotiations between the two Asian nations.

As the battles move on, Seoul subsequently announced that it would cut dependence on Japanese-manufactured goods. The relationship between these two countries dwindled after Japan imposed these sanctions and removed South Korea from its list of “white countries”, which are allies that are deemed trustworthy business partners.

Concerns for mediation by the United States have riddled Washington D.C. as policymakers consider intervening between two allies of its own. The administration may enact measures behind the scenes, but will try not to directly involve itself, as South Korea and Japan are two of America’s biggest allies in the region.

Moreover, a statement from the State Department declared that continued “trilateral cooperation” is essential for the prosperity of the region and of the world. A debate has emerged on whether or not these moves were part of short-term political ploy or long-term strategic calculation.

Regardless, they have implications that will affect the developed world in the future.

A prolonged continuation of such trade disputes between South Korea and Japan can have disastrous repercussions for the global supply of computer chips and smartphones, which relies substantially on cooperation between both countries.

Such halt in the global chain supply particularly targets global tech giants that depend on the supply of such goods.

The dispute erupted over a diplomatic dispute over compensation for Korean wartime forced labor that dates back to World War II.

While Japan argues that compensation was settled in 1965 with the treaty that established diplomatic relations between both countries, South Korean officials are still adamant that two Japanese companies are legally obliged to compensate the workers.

Nonetheless, while the tensions heighten, South Korean President Moon Jae-in met with prominent party leaders and promised to unilaterally resolve the dispute with Japan on Thursday.

The trade dispute between Japan and South Korea is another classic example of countries employing self-detrimental economic policies as tools for political objectives.

While Japan wishes to “punish” South Korea for its “lack of action” in regard to a historical case against Nippon Steel last year, the implementation of such punishment – particularly the promulgation of trade curbs against Seoul – ultimately hurts Japan itself, as one of the pillars of economic theory (made particularly clear in the work of French economist Friédéric Bastiat) is that trade barriers are harmful to the economy that is imposing them.

Furthermore, given the magnanimous significance the technological sector has not only to both the Japanese and South Korean economies but also to a variety of Western countries, trade barriers that in any way limit or adversely affect such sector can have catastrophic repercussions for a substantial amount of countries, particularly the two that are involved in the trade disputes.

Yet, both Tokyo and Seoul’s use of trade barriers as political tools are part of a larger global trend to use trade as a political weapon, as is also clearly reflected in the United States and China’s prolonged trade war.

While these trade restrictions might be useful politically, there is almost unanimous agreement among economists that trade barriers are substantially damaging to a nation’s economy — Harvard economist Greg Mankiw polled a variety of prominent economists on the topic of trade barriers and 93% agreed,

“Tariffs and import quotas usually reduce general economic welfare.”

However, despite the consistent view among economists that free trade is always beneficial, many politicians around the world still sacrifice this basic economic principle in order to achieve their own political agendas.

Whether it is a dispute between who has to pay whom for wartime compensation or who is taking “advantage” of the other, crucial economic principles should not be so recklessly abandoned in the name of politics.

Reeves Moseley
Pamela Troconis
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