Economic power has become the battering ram of diplomacy. Over the last two decades, China has used its considerable economic weight to punish countries that misstep diplomatically. While economic coercion has become a recognized tool of Chinese statecraft, the recent spread of such tactics throughout Northeast Asia is creating instability that risks undercutting the regional rules-based order foundational to U.S. and allied interests.
In early July, Japan restricted exports to South Korea on materials necessary for semiconductor production, South Korea’s biggest export. Japan claims the move was prompted by concern that South Korean controls of the materials weren’t appropriately stringent and thus the goods were being re-exported through South Korea to North Korea. According to the Korea Economic Research Institute, a 30 percent curb on components from Japan would result in a $35 billion loss to South Korea’s GDP. Sales of South Korean semiconductors fell 30 percent in the first 20 days of July, compared to last year’s sales.
While the South Korean government condemned Japan’s actions as “economic retaliation” and filed a claim with the WTO, the South Korean public has mobilized itself to punish Japan for its coercive behavior. A movement is taking root on South Korean social media to boycott both Japanese products and travel to Japan. The movement even has a logo, with the “O” in “NO” stylized as the red rising sun symbol on Japan’s flag. According to a recent survey, nearly 67 percent of South Koreans plan to join the boycott. Sales of popular Japanese products, such as beer, fell almost 25 percent during the first two weeks of the boycott. Matters could deteriorate still further, as Japan is considering removing South Korea from its “white list” of trusted trading partners.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
These punitive and coercive economic measures come in the context of struggling Japan-South Korea relations. The current dispute between the two countries began with an October 2018 ruling by South Korea’s Supreme Court ordering some Japanese companies, notably Mitsubishi Heavy Industries, Nippon Steel Corp., and Nachi-Fujikoshi Corp., to pay reparations to South Koreans forced to work in their factories during Japanese colonial occupation. Japan objected to the ruling and many expected the South Korean government to intervene in the court’s judgement but it declined to do so. The companies’ assets in South Korea were seized once the defendants refused to pay damages. Last week, the lawyers for the South Korean plaintiffs announced they will soon ask the court to authorize the sale of the seized assets in order to generate the awarded compensation.
Tensions between the two were further fueled by Japanese allegations that a South Korean naval destroyer locked its fire-control radar onto a Japanese maritime patrol aircraft in December 2018. Such an act is considered hostile and a violation of multilaterally agreed upon rules of unplanned naval encounters. South Korea denies that its destroyer locked its radar onto the Japanese aircraft.
The Japanese government and South Korean public have responded to the diplomatic disputes by emulating the economically coercive tactics that they each have faced from China.
Boycotts, like the one begun by the South Korean public, are a popular tactic often utilized by China. In 2016, after South Korea announced deployment of the U.S. THAAD missile defense system on its soil, the Chinese public reacted with nationalistic fervor, posting videos of themselves destroying South Korean products in the streets. Chinese tourism to South Korea also dropped 48 percent during the tensions. In 2012, boycotts against Japanese products were organized in response to Japanese state purchase of some of the contested Senkaku/Diaoyu Islands, although it is unclear to what degree the Chinese government instigated the boycotts.
Similarly, China once held Japan’s supply chain hostage in much the way Japan has curbed vital exports to South Korea. In 2010, China cut off exports of rare earth metals to Japan after Japan detained a Chinese fishing boat crew following a collision with a Japanese Coast Guard vessel near the disputed Senkaku/Diaoyu Islands. At the time, Japan relied on rare earth metal imports from China to produce a number of key industrial products.
The use of economically coercive tactics has sowed new distrust between South Korea and Japan. While the two countries have traditionally had a tense relationship, public opinion polling showed that trust between the two had been building. People in both countries acknowledge a gradually growing acceptance that the two are aligned by shared interests when it comes to upholding international norms and the rule of law, especially as both increasingly see North Korea and China as coercive, threatening forces. But now many South Koreans feel encircled by foes, displacing their post-THAAD distrust of China onto Japan, lamenting that Japan is treating South Korea just as China did two years ago.
The adoption of a rival’s coercive tactics by a U.S. ally is alarming. So is the fact that a grassroots movement founded on punitive action against a regional partner has garnered mainstream traction. It suggests that both South Koreans and Japanese have found Chinese coercive campaigns over the years to be a viable method of punishing dissatisfactory bilateral behavior and coercing concessions. While Japan had a victory against China at the WTO in 2010, China faced no repercussions for its coercive measures against South Korea over the THAAD case or the 2012 anti-Japanese boycotts. The failure of the United States and the international community to respond effectively to such actions in the past has increased the likelihood that they will be applied in the future, by China and by other parties. China is likely watching with glee as South Korea and Japan legitimize its coercive tactics. That the tactics are being used to further degrade the region’s most important bilateral relationship for defending a rules-based Indo-Pacific is just an additional advantage.
South Korean President Moon Jae-in requested U.S. mediation at his June 30 summit with U.S. President Donald Trump in Seoul among rumors that Japan was then preparing to enact the current export restrictions. Trump said in a July 19 response to a journalist’s question that he would get involved if both South Korea and Japan asked him to do so, but signaled that he preferred the two countries resolve their dispute themselves, calling involvement with Japan and South Korea “a full-time job.”
Despite Trump’s reluctance, U.S. diplomats previously worked behind the scenes to orchestrate meetings between former South Korean President Park Geun-hye and Japanese Prime Minister Shinzo Abe at times of high tension in 2014 and 2015. The unprecedented use of economically coercive tactics by both countries to punish and cajole one another should indicate to U.S. officials that tensions have reached a fever pitch. American condemnation of the adoption of these tactics to settle diplomatic disputes should be swift and unequivocal. To disincentivize their continuation, the United States should again step in to mediate the underlying diplomatic dispute and provide an off-ramp for the nationalistic zeal rising in both countries.
The tensions could spill over into security issues. South Korea has suggested it may “review” its military intelligence-sharing agreement with Japan if Japan further escalates. South Korea’s suggestion shows how easily escalation of the dispute could jeopardize facets of trilateral security cooperation in the region, putting U.S., South Korean, and Japanese interests at risks and limiting their ability to respond effectively to North Korean and Chinese provocations. In this sense, South Korea and Japan are punishing themselves as much as they’re punishing each other.
Engaging in such economically coercive tactics changes the dispute from a diplomatic disagreement to an economic one. The conflict is now being framed as a trade war, obscuring the larger, more impactful issue of historical disagreements over Japanese colonial rule of South Korea, which has limited regional cooperation for decades.
A U.S. decision to mediate must acknowledge that convincing Japan to reverse export controls on South Korea is insufficient. Successful resolution of this dispute requires a considered framework for working with South Korea and Japan to not only address historical grievances, but to also incentivize the political elite in both countries to value cooperation over the domestic political points that can be scored within nationalistic contingencies.
South Korea and Japan each possess distinctive military, diplomatic, and economic capabilities necessary to bolstering the capacity of U.S.-bilateral and trilateral partnerships. A willingness to share those capabilities with one another as well as the United States is essential to protecting American, South Korean, and Japanese interests in the Indo-Pacific. Without a reliable South Korean-Japanese partnership, no U.S.-led bilateral or trilateral efforts will be enough to ensure regional stability.
Mercedes Trent is a Research Assistant at the Federation of American Scientists. She spent the last five years in Japan and Taiwan working on foreign policy issues in Asia.