Published on July 24, 2019.
Based on an article in this week’s issue of Weekly Post, this essay introduces the shock that Japan’s strengthened export controls toward South Korea inflicted on the South Korean economy, especially its semiconductor industry.
Through the three items of resists, hydrogen fluoride, and fluorinated polyimide, as well as Samsung, SK Hynix, LG, the Moon Jae-in administration’s response, the plunge in South Korean stock prices, and the impact on South Korea’s GDP, it discusses the reality of Japan–South Korea issues that television stations have failed to report.

July 24, 2019.
“The cause, of course, was Japan’s strengthening of export controls.
Market participants were astonished that the tightening of controls on only three items could deal such a blow to the South Korean economy,” said a South Korean stock-market source.
The following is from this week’s issue of Weekly Post.
Readers will surely recognize once again that television stations, beginning with NHK, have not reported these facts at all.
The emphases in the text, apart from the headings, are mine.
“Japan–South Korea Diplomatic Break: South Korea’s Economy Faces Total Collapse.”
The Japanese government, which until now had continued to be tossed about by the arrogant behavior of its “neighbor,” has played its “card.”
The Japanese side had carefully simulated that the activation of these export restrictions would become the trump card that would drive South Korea into a critical situation from now on.
President Moon Jae-in continues making emotional remarks, but the impact on the South Korean economy is extremely large.
Canceled a meeting with Moon Jae-in.
“I warn you that, in the end, greater damage will be inflicted on the Japanese economy.”
The person who directed such high-handed words at Japan was South Korean President Moon Jae-in.
They were remarks made at a meeting held at the presidential office in Seoul on July 15.
The starting point was the Japanese government’s new policy on exports to South Korea, implemented on July 4.
The content was a shift in policy regarding three items necessary for the manufacture of semiconductors and displays—photosensitive materials, or resists; etching gas, or hydrogen fluoride; and resin materials for displays, or fluorinated polyimide—away from the previous simplified procedures and toward export screening requiring individual export-permit applications.
What, then, is the actual impact on the South Korean economy?
Muto Masatoshi, former Ambassador Extraordinary and Plenipotentiary to South Korea and a diplomatic and economic commentator, points out the following.
“President Moon’s remarks, which appear strong, are in fact an expression of considerable agitation.
That is because President Moon, who until now had taken no measures no matter how much Japan–South Korea relations deteriorated, this time immediately dispatched his close aide, Trade Minister Yoo Myung-hee, to the United States to request mediation on the issue.
The agitation in South Korea’s business world is even more intense: Samsung Vice Chairman Lee Jae-yong even skipped a meeting with business leaders presided over by President Moon and came to Japan to begin coordinating with the Japanese side.
Not only Samsung, but also major conglomerates such as SK and LG, which place information and communications businesses at the core of their operations, are running around trying to procure alternative semiconductor materials.”
On July 8, after the measures began, more than 800 stocks plunged on the South Korean stock market.
The semiconductor industry stood out in particular, with Samsung Electronics, LG, SK Hynix, and others all falling across the board.
“The cause, of course, was Japan’s strengthening of export controls.
Market participants were astonished that the tightening of controls on only three items could deal such a blow to the South Korean economy,” said a South Korean stock-market source.
Looking back, since the Moon Jae-in administration was inaugurated in May 2017, the South Korean government has advanced reconciliation with North Korea while taking a provocative posture toward Japan.
It scrapped the comfort women agreement that was supposed to be a “final and irreversible resolution,” revived the wartime labor issue that had already been settled by the Treaty on Basic Relations between Japan and the Republic of Korea, and furthermore, the Speaker of the National Assembly said that “the Emperor is the son of the main culprit of war crimes” and that “if he simply says he was truly sorry, the comfort women issue will be completely resolved.”
The Seoul City Council also proposed an ordinance to boycott Japanese products, and the anti-Japanese campaign knew no end, causing Japan–South Korea relations to fall to their worst postwar level.
Even so, the Japanese government had shown an “adult response” and avoided overt retaliation.
But behind the scenes, it had been watching intently for the chance to “counterattack.”
A staff member at the Prime Minister’s Office revealed the following.
“This strengthening of export restrictions is not a plan that suddenly appeared.
Kasumigaseki, having received secret instructions from the Prime Minister’s Office, had since around last December repeatedly conducted simulations by the relevant divisions of each ministry and carefully worked out what kind of measure would be most effective.”
South Korea’s GDP would fall by 2.2 percent.
While searching for countermeasures, what the Ministry of Economy, Trade and Industry focused on was South Korea’s “greatest weakness.”
“South Korea is an export-driven country where exports account for about 40 percent of gross domestic product, or GDP, and semiconductors account for 20 percent of exports.
South Korea is called an ‘advanced IT country,’ but in reality, the only area that is growing and generating profits is semiconductors, while growth in other fields is said to be almost flat.
In the global semiconductor market, Samsung Electronics and SK Hynix together have a share exceeding 50 percent, while in displays, LG Display and Samsung Electronics account for 30 percent of the market.
Therefore, if semiconductors stagnate, South Korea will no longer be able to make televisions or smartphones, and its economy could suffer a fatal blow,” said Muto.
The three items whose export management Japan has strengthened are indispensable for the manufacture of semiconductors, which hold the fate of the South Korean economy.
“South Korea procures more than 90 percent of its resists and fluorinated polyimide, and more than 40 percent of its hydrogen fluoride, from Japan.
The manufacture of high-purity products that can be used in delicate semiconductors is the specialty of Japanese manufacturers, and Japanese companies also have a large share of these products in overseas markets.
Procurement from countries other than Japan is difficult, and strengthened export controls can put great pressure on South Korean companies,” said a semiconductor industry source.
If the supply of the three items that support the backbone of South Korean semiconductors were stopped, the South Korean economy would fall into panic and have no choice but to move closer to Japan—this was the top-secret scenario devised by all of Kasumigaseki.
The Moon Jae-in administration has reacted against this measure, saying that it is “a retaliatory measure for the handling of the wartime labor issue,” and is worked up about “filing a complaint with the WTO, the World Trade Organization.”
But Muto points out that “Japan’s measure this time has legitimacy.”
“To begin with, this measure is being called a ‘strengthening of export restrictions,’ but to be precise, it is an arrangement that eliminates preferential treatment in export procedures, and even at present, if ordinary procedures are followed, exports of the three items are possible.
Also, the reason the government explained for strengthening export management of the three items was that inappropriate cases had been found in trade management regarding these products, which can also be diverted to weapons such as fighter aircraft and radar.
It is clear that introducing export controls in response to such ‘inappropriate cases’ does not violate the WTO Agreement, and President Moon Jae-in’s criticism will not be accepted internationally.”
According to calculations by Cho Kyung-yup, a senior research fellow at the Korea Economic Research Institute, if this measure causes a 30 percent shortage of semiconductor materials in South Korea, South Korea’s GDP will decrease by 2.2 percent, while Japan’s GDP will decrease by only 0.04 percent, one-fiftieth as much.
Even research within South Korea sees South Korea as suffering major damage while Japan’s damage remains slight.
This essay continues.