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Japan-South Korea has an impact on the supply chain of semiconductors, prices

Memory Module by Samsung Electronics

SeongJoon Cho | Bloomberg | The recent escalation of tensions between Japan and South Korea has sparked fears that an important global semiconductor chain may be interrupted – and this raises concerns about the already sluggish world economy.

Neighboring countries are part of a complex and closely connected network of economies that contribute to the production of electronic goods such as smartphones and laptops. But earlier this month, Tokyo suddenly imposed stricter control over a portion of this network: the supply of certain chemicals from Japan to South Korea.

These chemicals are used by Korean manufacturers to produce semiconductors and are critical to making components ̵

1; including memory chips, microprocessors, and integrated circuits – that can be found in many modern electronic products.

Considering the widespread use of semiconductors, companies that test and make them are often seen as a global health barometer Global semiconductor sales have risen 12.5 percent to $ 474.6 billion. In 2018, according to research firm Gartner .

Already the United States and China are closed in an annual trade war that has diminished global growth. perspective. Now that tensions between Japan and South Korea have also intensified, this can make things worse.

"The continuing trade dispute between Japan and South Korea could have serious consequences for the global semiconductor industry if a resolution can not be established in the near future," said Raviv Bisvas, chief economist of the Asia-Pacific region in the consulting firm IHS Markit. Japanese operations on July 1 announced that it would limit the export of three chemicals to South Korea: fluorinated polyimide, resist and hydrogen fluoride. These high-tech materials are used in the manufacture of semiconductors and displays. Tokyo referred to the "inadequate management" of chemicals for which some reports could be diverted for military use – as a reason for imposing restrictions.

The restrictions came into force on July 4, and Japanese exporters must now seek permission each time they want to send one of the three chemicals to South Korea. This process takes about 90 days.

If memory supply chips occur in the South Korean memory chips, the cost of memory components may increase considerably …

Rajiv Biswas

Asia Pacific Chief Economist, IHS Markit

Additionally Tokyo said it plans to remove South Korea from preferential treatment in its trade relations with Japan. A move that is expected by August will include removing South Korea from the "white list" of countries that Japan considers reliable.

If Tokyo continues with its plan, Japanese exporters will need delivery licenses to South Korea. 850 items that can be used in weapon-related applications, according to IHS Markit.


Japan produces about 90% of the world's supply of fluorinated polyimides and resists about 70% of hydrogen fluoride. Japan's global dominance of these chemicals will make it harder for South Korean companies to obtain alternatives when their supply is interrupted by Tokyo's export restrictions.

Even if they can find alternative sources, companies may either face quality problems or fail to get adequate supplies to meet their production orders, "according to a report by Lloyd Chan and Shiger Nigai, economist at Oxford Economics, a consulting firm, said in a statement that it would be able to supply the 61% of the components used in memory chips globally in 2018.

bad news for their customers, including big ones is technology companies Apple and Huawei

So far, both South Korean suppliers have "high" levels of semiconductor stocks that they can rely on, according to Citi analysts. But when it is withdrawn, chipmakers may have difficulty in implementing of production deadlines if they fail to find alternative suppliers of the three chemicals on time 20-30 days. They did not provide SK Hynix inventory data but quoted a local media report saying the company had told clients that the current situation is manageable in the near future. However, any prolonged destruction of Japanese exports of the most important chemicals in South Korea could lead to a global shortage in the supply of memory chips and, as a result, to raise prices, Bisvis warned IHS Markit.

There may be an effect of infection, and the US and China may also feel the pain, given that the two countries rely on supplies from South Korea, the economist noted. US electronics companies with production sites in both the US and China or in one of the two countries are particularly vulnerable, he said. "If memory supply chips occur in South Korean memory chips, the cost of memory components can be greatly increased due to the inability of other memory providers to meet world demand," Bisvas said. "The end products, including servers, mobile phones, personal computers and a variety of consumer electronics, will be affected," he added.

As a result, consumers around the world may have to pay a higher price for these products. 19659010] The Trigger

Relations between Japan and South Korea were not always warm. Asian neighbors share a bitter story dating from the Japanese colonization of the Korean Peninsula from 1910 to 1945 during the Second World War.

The two countries signed a treaty in 1965 to restore diplomatic ties. But disagreements over what was regulated in the treaty continued to strain their ties in the coming decades, with sharp points, including the use of forced labor by Japanese companies and sexual slavery in military bordes.

t Commercial action against South Korea. But the media says the Tokyo moves are in response to a dispute over forced labor during the war.

The trade dispute between Japan and South Korea comes at a time when continued tensions between the United States and China continue to diminish economic activity globally. This is one of the reasons why some analysts say they do not expect the two sides to escalate the conflict and even more harm to their respective economies.

We do not expect trade strains to grow to such an extent that business is seriously affected, as Korea is seriously affected. and Japan must have sufficient economic incentives to minimize potential consequences.

Oxford Economics

Moreover, because of how closely their economies are linked, Japan's measures against South Korea "will lead to mutually guaranteed destruction," said Vacas Adenala, an analyst at Asia at the Economist Intelligence Unit

"South Korea is an important export market for Japan. Manufacturers of materials used in the manufacture of semiconductor devices will struggle to find new buyers, "Adenwala said in a note earlier this month. are producing electronics, buying semiconductor elements from South Korea, and will face delays in their production, "he added.

For South Korea, Japan's dependence on high-tech materials, machinery and equipment will deter Seoul from escalating tension, Oxford Economics Chan and Nagai.

"We do not expect trade strains to grow to such an extent that businesses are seriously affected, as Korea and Japan need to have enough economic incentives to minimize potential consequences," economists said.

Schoen contributed to this report.

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