In July this year, Japan’s Ministry of Economy, Trade and Industry (METI) announced that it will restrict exports of fluorinated polyimides, photoresists and hydrogen fluoride, which are essential to the manufacturing of semiconductors and smartphone displays. These measures are aimed at dismantling the existing global semiconductor value chain, namely for dynamic random-access memory semiconductors (DRAMS). In response, South Korea’s Ministry of Trade, Industry and Energy (MOTIE) has launched a dispute initiation process at the WTO against Japan’s export curbs.
The semiconductor industry also plays a critical role in national security. Semiconductors, particularly DRAMS, are vital to the fourth industrial revolution in which the use of advanced memory chips will be crucial for full-fledged optimisation of AI, robotics and the Internet of Things (IoT). The growth of semiconductor chips used for AI, DRAMS and NAND (flash memory) is expected to be five times greater than growth in the rest of the semiconductor industry. Technology such as an AI robot replicating the human thinking process and estimating missile flight paths would be impossible without the existence of advanced memory chips with high storage capacity.
Given that the semiconductor industry is closely linked with possibilities for surveillance, the implications for national security mean that tech wars on semiconductors are no longer just about global market share. Indeed, Japan claims that its decision to curb exports of these strategic materials to South Korea stems from national security concerns over the latter’s lack of oversight.
Currently, South Korea’s Samsung and SK Hynix together dominate the world’s DRAMS market with 72.8 per cent of the global market share and the NAND flash market at 46.8 per cent (2019 Q1 estimates). Because Samsung is one of the main suppliers of memory chips to Huawei, the Japanese export curbs may lead to a slowing down of China’s AI progress by altering Samsung’s production line. To boost NAND flash market shares, Japan’s Toshiba Memory is constructing a joint investment manufacturing facility in Kitakami, Iwate Prefecture to collaborating with US chipmaker Western Digital for a joint venture and R&D activities on 3D NAND production.
Japan’s export restriction measures appear to be borrowed from the trade war playbook that US President Donald Trump used when he imposed a ban on Huawei. Japan’s one-time temporary approvals for exports also mirror the temporary exclusions that allow for US semiconductor manufacturers such as Micron to sell its products to Huawei.
For the Obama and Trump administrations, a goal has been to retain and increase US global semiconductor market share and curb China’s effort to create its own semiconductor industry, with US chipmakers Micron and Western Digital resisting Chinese expansion in the industry. Spurred by a failed bid to acquire Micron four years ago, China’s Tsinghua Unigroup has declared its intent to produce its own chips in the face of the ongoing US ban on Huawei.
Japan’s export curbs are an effort to regain its technological edge over South Korea and to potentially recapture the memory chips segment of the industry. Led by former Ministry of Finance official Furuya Kazuyuki in July this year, the Japanese trade bureaucracy made a concerted inter-ministerial effort among METI, the Ministry of Foreign Affairs and the Ministry of Agriculture Forestry and Fisheries to strategise a retaliation against the South Korean Supreme Court rulings on forced labour during the colonial era. This led to METI’s proposal of shock therapy on one of South Korea’s major industries — the semiconductor industry. Despite concerns of disruption in the supply chain that Japan and South Korea have built over time, METI’s decision was supported by the Japanese Prime Minister’s Office.
In imposing export restrictions, Japan has every intention to reshuffle the global rankings of semiconductor market share. Both countries have walked down this road before, with the United States losing global market shares to Japan in the 1980s and 1990s, and Japan subsequently handing over the lead to South Korea in the 2000s and 2010s.
Lobbying by the US Semiconductor Industry Association during the US–Japan trade war in the 1980s compelled Japan to sign the 1986 US–Japan Semiconductor Agreement. Japan agreed to end the dumping of DRAMS in world markets and raise its prices. As a result, Japan’s DRAMS suffered a loss in market competitiveness. Through the agreement, the United States sought to regain control of the global semiconductor industry but it paved the way for South Korea’s Samsung and SK Hynix to excel in DRAMS production.
A resolution to the current spat between Japan and South Korea appears unlikely as long as the current leadership in both countries remain. The recent reshuffle of Cabinet by Japanese Prime Minister Abe and the creation of a new economic department within its National Security Secretariat signals the prolonged continuation of the spat. Japan’s export restrictions come at a time when the norm of global free trade is being challenged. This dispute only deepens global trade tensions, as Asia is already suffering from the impacts of the US–China trade war.
South Korea’s response of increasing domestic production and importing restricted materials from alternative sources to avoid Japanese export curbs signal a potential decoupling of the two countries in the semiconductor industry and beyond.
June Park is a political economist and external consultant at the Issam Faras Institute for Public Policy and International Affairs (IFI) at the American University of Beirut (AUB). She tweets @junepark.