Electronics exports at risk from South Korea-Japan trade tensions
Electronics exports at risk from South Korea-Japan trade tensions
Material inputs Vietnam needs for its electronics manufacturing and exports could be disrupted by ongoing Japan-South Korea trade tensions, experts caution.
Tra My, a Vietnamese student who often shops at Japanese apparel retailer Uniqlo’s stores in Seoul, South Korea, said she no longer has to wait in long lines to pay.
Despite it being the sales season, the stores have been largely empty in the last few weeks as South Koreans boycott Japanese goods in response to Tokyo imposing export restrictions on key chemicals used in the production of semiconductor products.
The boycott has moved to Vietnam, where South Korea owned supermarket chain K-Market announced early this month that it will stop selling goods originating from Japan.
The trade tensions can go beyond boycotts to disrupt the global supply chain of the electronics industry, affecting Vietnam, said Vo Tri Thanh, former Deputy Director of Central Institute for Economic Management (CIEM).
South Korean electronics manufacturer Samsung Corporation, which has created over 160,000 jobs for workers in Vietnam, is now looking for alternatives to replace Japanese components in order not to reduce chip production in the Southeast Asian nation.
Items related to semiconductors and monitors such as computers, phones and cameras account for about 35 percent of Vietnam’s total exports. Disruptions to the manufacturing of these goods could cause Vietnam’s exports to fall, Viet Dragon Securities (VDSC) said in a recent report.
In the first seven months of 2019, South Korea was Vietnam’s third largest export market at nearly $3 billion and accounting for 7.37 percent of Vietnam’s export turnover. Vietnam’s export of computers, electronic products and components to South Korea reached nearly $1.6 billion, according to Vietnam Customs.
Vietnam also imported $10.2 billion worth of computers, electronic products and components, and $2.5 billion in phones and components from South Korea, Vietnam Customs reported.
However, Suan Teck Kin, Head of Research and Executive Director at Singapore’s United Overseas Bank (UOB), is optimistic that the impact of South Korea and Japan tensions will not be as widespread as the U.S.-China trade war as it only affects the supply chain for one line of products.
When the U.S. or China imposes tariffs on each other, it directly affects economies, production, and final consumers worldwide, whereas the South Korea-Japan trade tensions are supply chain specific, and will only affect companies like Samsung which manufactures electronics and semiconductor related products.
Harry Loh, General Director of UOB Vietnam, believes that the South Korea-Japan tensions could largely be confined to both countries. For instance, Samsung has a separate legal entity in each of its export markets, including Vietnam, with relatively independent operations, so impacts of the trade spat would be limited to some but not all of its global departments.
Nevertheless, tensions between South Korea and Japan have shown no signs of cooling down, so Vietnam should monitor the situation closely and come with adequate responses to the risks involved, Thanh said.
Vietnam should look to diversify its partners, markets, utilize free trade agreements, and improve its domestic risk management to come up with immediate and long-term responses to international and regional trade wars, he added.
The acrimonious trade dispute between Japan and South Korea, two U.S. allies, grew out of a row over wartime forced labor, according to Reuters.
Japan last month tightened curbs on exports to South Korea of three high-tech materials needed to make memory chips and display panels. The Japanese government this month canceled South Korea’s fast-track trade status.
Removing South Korea from a "white-list" of favored export destinations means some Japanese exporters face more paperwork and on-site inspections before they can win permits, which could slow Korea-bound exports for a wide range of goods.
