trending Market Intelligence /marketintelligence/en/news-insights/trending/RpmdUZmW0LYjIN7mLJO77g2 content esgSubNav
In This List

S&P: South Korea stands to lose more in trade spat with Japan

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


S&P: South Korea stands to lose more in trade spat with Japan

South Korea stands to lose more from its monthslong trade dispute with Japan, though no country will necessarily emerge as a winner, S&P Global Ratings warned in a report.

The report came on the same day that South Korea dropped Japan from its so-called white list of preferred trading partners, in an apparent retaliation against a similar move by Tokyo. The Japanese government had also earlier imposed restrictions on exports to South Korea of three fine-chemical products used in semiconductors and displays.

Seoul "may be at a disadvantage" in its spat with Tokyo given its higher dependence on imports from its East Asian neighbor, said Shaun Roache, chief economist for Asia Pacific at the rating agency. Japanese inputs such as machinery and refined chemicals account for between 2% and 4% of South Korea's gross output in industries including electrical equipment and technology hardware, though their share has been declining in recent years.

The most harmful consequence of deepening tensions could be on "mutual trust" in trade relations, the report said. Firms from both countries may reduce trade reliance on each other, resulting in increased costs, stunted revenues and reduced return on capital.

"If Japan restricts its shipments of some capital and intermediate goods, Korean importers may have to pay much higher prices to alternative suppliers," the report said, adding that in a worst-case scenario, South Korean firms may be forced to reduce production if they fail to find alternatives quickly.

The trade tensions complicate the Japanese government's efforts to mitigate the effects of a planned sales tax increase later this year and are also expected to weigh on South Korea's economic outlook, the rating agency said. However, both countries' ratings remain solid, it added.

Both Japan and South Korea trade more with China and the U.S. than they do with each other, the report noted.