Japan and South Korea dispute at risk of intensifying as deadline passes

Today marks the deadline for South Korea to agree to a third-party arbitrator in its escalating economic dispute with Japan.

The tension between the two–which stems from South Korean court decisions ordering the seizure of Japanese corporate assets–escalated to a global trade worry two weeks ago when Japanese PM Shinzo Abe moved to curb the export of materials deemed vital to South Korea’s production of semiconductors.

For weeks, South Korea has resisted third-party arbitration, arguing that conscripted workers have a right to pursue their claims in court.

Talks to ease the export restrictions on July 12 proved unsuccessful, sparking concerns that this issue could balloon into a broader trade dispute. Japan has threatened to remove South Korea from a list of trusted export markets, a move that would affect a broader array of South Korean products.

The economic dispute between the two has fostered larger concerns that countries are now favouring aggressive stances on trade. In the ‘new norm’ of trade disputes created by US President Donald Trump’s policies, analysts have warned of larger rifts between allies that threaten to break down the global trade system. If left unchecked, the dispute between Japan and South Korea could lead to open economic warfare, which will affect businesses from both nations and potentially chip-makers’ global supply chain.

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