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Home / World / Japan-South Korea dispute "disturbing and unhelpful" for the economy: DBS

Japan-South Korea dispute "disturbing and unhelpful" for the economy: DBS



South Korean President Moon Jae-in passes Japanese Prime Minister Shinzo Abe at the G20 summit in Osaka, Japan on June 28, 2019.

Kim Kyung-Hoon | Bloomberg | Getty Images

The dispute between Japan and South Korea is "a loss-loss proposition" as the US and its trading partners are involved in a continuing global trade war, one economist said Tuesday.

Tokyo and Seoul have long had political differences due to Japan's behavior during the Second World War. The conflict between the neighbors has hit the economy when, earlier this month, Japan restricted the export of materials critical to the South Korean high-tech industry.

Japan and South Korea are major exporters of products such as chips and smartphones. An escalating trade battle between the two could be bad news for the global technology industry, and consumers may need to pay more for products.

"This development that we are now seeing is disturbing and unhelpful for the global economic sentiment, first of all we have so much to do with the trade war between the US and the rest of the world," said Taimur Baig, chief economist at DBS "Group Research," CNBC told "Squawk Box" on Tuesday.

Japanese and South Korean companies have been building "complicated" supply chains for years and it will be "so difficult" to repeat such agreements if they are trusted by all concerned.

"It does not help anyone," he said. "For me it's a loss-loss proposal."

Baig is not the only one who has warned of a potential disruption to the technology supply chain. Troy Stangarone, a senior director of the Korea Economic Institute of America think tank, said semiconductors could rise as South Korean manufacturers cut production due to Japan's trade restrictions.

These higher costs could be passed on to consumers, some experts warned.

Can China benefit from this?

However, other analysts said affected companies would find a way to deal with the measures imposed by Japan.

Jesper Koll, Senior Advisor at WisdomTree Investments, told CNBC last week that the total value of products affected by the curbs of Japan is less than $ 450 million. He predicted that if Tokyo introduces further restrictions, "people will be confused, but the overall damage will be tiny."

And Chinese companies could potentially intervene to fill gaps in the supply of engineering parts, Stangarone said.

] "At a time when the US has expressed concerns about Chinese technology companies, the dispute between Japan and Korea is creating room in the market for (Chinese) government-backed companies to establish themselves as potential players," he said to CNBC in an email.

"Even though they are not as advanced as chip makers like Samsung or Micron, these companies have the opportunity to replace supply when market disruption occurs," he added.

Baig is less optimistic about China's potential to use Japan as an important successor supplier to South Korea. There are reasons why Japan has the competitive advantage of supplying these materials at all, and China may find it difficult to reproduce the same advantage.

"Can China be a beneficiary? I have my doubts," he said. "You can not easily reinvent and recalibrate these supply chains, even if you're China."

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1; Reuters contributed to his report.


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