By Conor Gallagher
Japan and South Korea are facing difficult decisions over Washington’s intensifying conflict with Beijing. The US is working to get both countries to join efforts to economically isolate and militarily contain China.
Seoul and Tokyo need look no further than how Washington’s allies in Europe are suffering in their efforts against Russia for an example of the sacrifices the US will demand. And yet right-wing governments in both Japan and South Korea seem to be sleepwalking into frontline roles in an unwinnable conflict that could decimate their economies.
While Tokyo and Seoul have been pragmatic in their dealings with Russia, early indications are they’re going to have a more challenging time navigating what’s to come in the US economic war against China.
After a meeting on the sidelines of the ASEAN summit earlier this month, the leaders from the US, Japan, and South Korea issued a joint statement against China, calling for “maintaining peace and stability across the Taiwan Strait.” The statement added:
President Biden reiterated that the U.S. commitment to defend Japan and the ROK is ironclad and backed by the full range of capabilities, including nuclear … The Leaders strongly oppose any unilateral attempts to change the status quo in waters of the Indo-Pacific, including through unlawful maritime claims, militarization of reclaimed features, and coercive activities.
Washington’s has done all it can to gin up controversy over the previously-uncontroversial “One China” policy with regards to Taiwan. Billions of dollars in military aid goes to Taiwan, as did one Nancy Pelosi. The manufactured crisis over Taiwan and Chinese “aggression” are now the stated reasons for military buildups in South Korea and Japan (and elsewhere, such as Guam).
According to Kyodo News, Tokyo is working on new long-range missiles that would be able to reach parts of China. Toshiyuki Shikata, a former lieutenant general in the Japan Ground Self-Defense Force, told Stars and Stripes:
It is necessary to change [the constitution], but it is important that the political parties come together. It is not just about changing the capacity of the missiles; it’s about changing the concept of national security … If China attacks Taiwan, it will threaten the lives of the Japanese. Japan has no choice but to reinforce their weapons.
Prime Minister Kishida Fumio of Japan is a prominent China hawk, often claiming that “Ukraine today could be East Asia tomorrow” and promoting the US accusation that Beijing is planning an “unprovoked” invasion of Taiwan.
Japan’s moves ignore Article 9 of the country’s constitution stating that its people “forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes,” but the threat is apparently too big to ignore.
The Yomiuri Shimbun reported on Monday that Japan’s national security strategy document, which is set to be published in December, will align with NATO and name China as a challenge to Japanese interests. And Japan is ramping up its military capabilities to meet that perceived challenge.
According to The Japan Times, Tokyo is moving to purchase US Tomahawk cruise missiles with the aim of a “counterstrike capability.” The need for the weapons arose after a recent operations review conducted with the US. According to Japan’s 2022 white paper on defense, it plans to beef up defense in southern Japan and on islands between Okinawa and Taiwan with anti-ship and anti-air missiles, several intelligence, surveillance and reconnaissance units, as well as groups dedicated to electronic warfare and anti-access missions.
Tokyo is also continuing defense research and development efforts to make electromagnet rail guns, high-powered microwave energy systems to counter drone swarms, a loyal wingman drone and scramjet engine technology. Unlike previous Japanese white papers, the 2022 version discarded any diplomatic pretenses and instead loudly announced China as a threat.
“The national security environment surrounding our nation is growing more severe, including the East China Sea and South China Sea,” Prime Minister Kishida said recently. “The enhancement of our naval capabilities cannot wait, including the construction of new naval ships, bolstering our missile defense capacity and improvement of the work conditions and compensations for our personnel.”
Earlier this month Japan joined NATO’s Cooperative Cyber Defence Centre of Excellence, and Tokyo and Berlin also agreed to enhance their defense cooperation, including starting negotiations for a military pact for exchanges of supplies and logistical support.
In the run-up to the March election, Yoon promised a break with his predecessors’ foreign policy, vowing to directly confront North Korea and China and to help build up U.S. militarization of the Pacific. He is delivering on that promise.
US forces in South Korea are upgrading the Terminal High Altitude Area Defense (THAAD) missile defense system deployed in Seongju, a small county about 130 miles south of Seoul. While the stated reason for the THAAD deployment has always been North Korea, its radar can peer into Chinese airspace. Yoon has voiced support for adding another THAAD system, as well.
Recall that six years ago Beijing hammered the South Korean economy with a series of unofficial sanctions and tariffs after the initial deployment of THAAD. Yoon’s predecessor, Moon Jae-in, tried to repair relations with Beijing by pledging that Seoul wouldn’t deploy any additional THAAD systems, participate in US-led missile defense networks, and wouldn’t form a military alliance with Washington and Tokyo.
There is also a push for nuclear-powered submarines in South Korea, although it’s unclear what exactly the need is for them. Seoul already has powerful anti-submarine capabilities vis-a-vis North Korea and an effective conventional submarine fleet. From the Asia Times:
In a potential crucial strategic development, the United States and South Korea agreed last month to share small modular nuclear reactor (SMR) technology, a move that could pave the way for Seoul’s indigenous development of nuclear-powered submarines.
The publicly announced agreement marked a change in longstanding US policy toward South Korea, dating back to 1972, that restricts the sharing of sensitive nuclear technology. …
South Korea could use nuclear-powered subs to assist US forces in any potential conflict in the East or South China Sea, though Seoul’s strategic interests are not fully compatible with US-led attempts to contain China, which it needs at the negotiating table with North Korea.
The situation is more complicated for Seoul due to the North Korea issue – and the status quo is more beneficial to Washington.
Recall that during the Trump administration there was grandiose talk of a deal to denuclearize the Korean peninsula. Those hopes faded after the 2019 Hanoi Summit failed, but there was still a chance for the Biden administration to pick up where those talks stalled. Instead it’s been a return to missile launches from Pyongyang, US-led sanctions, and arms to South Korea.
There is one underlying problem with all the North Korea talks: any end to the conflict could lead to a break in the US-South Korea alliance. Lee Sung-yoon, a professor at The Fletcher School at Tufts University, told The Diplomat:
The United States knows an end-of-war statement is a prelude to a peace treaty without denuclearization – and that will lead to the dismantlement of the Combined Forces Command and calls for the eviction of United States Forces Korea.
There has also been recent talk of Japan joining the Australia-UK-US nuclear submarine pact. From the Chinese equivalent of the Washington Post editorial page, The Global Times:
It is anticipated that Japan will join AUKUS sooner or later and it’s just a matter of time, both Yang Xiyu, a senior research fellow at the China Institute of International Studies, and Song Zhongping, a Chinese military expert and TV commentator, told the Global Times.
Yang noted that tensions with Beijing or the so-called China threat is just the pretext, Tokyo’s increase in its defense spending or its willingness to join military groups is because it desires to turn itself into a military power.
The US enacted a series of export controls in October to cut China off from certain types of semiconductor chips made anywhere in the world with US equipment in an effort to strangle advanced parts of China’s technology industry.
So far it is just a US effort, and China can still get advanced chips and chip equipment from places like South Korea and Japan.
Gregory C. Allen, director of the artificial intelligence governance project and a senior fellow at the Centre for Strategic and International Studies, writes that the US needs to make sure that all of its allies are “rowing in the same direction when it comes to keeping China’s semiconductor industry down.”
Turning these unilateral export controls into multilateral ones will be a major challenge. Expect this to be a key White House diplomatic priority for discussions with Europe, Japan, Taiwan, and South Korea going forward.
So far, they are not. The Biden administration attempted to persuade allies, such as the European Union, Japan and South Korea, to join the controls, but all ultimately declined. The US granted one-year waivers, but the pressure is expected to intensify with the accompanying threat of facing some sort of export control. From the Japan Times:
“The memory chip industry could be the most affected in the long-term, with the risk of collateral damage to firms based in US partner countries,” wrote the Rhodium Group, noting that South Korean chipmakers SK Hynix and Samsung, now at the mercy of U.S. licensing decisions, are likely to face “significant costs linked to the restructuring of their supply chains.”
Both companies, along with the Taiwan Semiconductor Manufacturing Company — the world’s largest chipmaker — have obtained a one-year waiver but are under growing pressure to find a solution, with SK Hynix recently announcing that it might be forced to sell its manufacturing operations in China should American export controls intensify.
Japanese chipmakers, meanwhile, will not be directly impacted as they don’t have facilities in China that face such restrictions, nor do they sell advanced chips to China.
There are signs US pressure is beginning to work. SK Hynix’s chief marketing officer Kevin Noh said last month that the company might be forced to sell its manufacturing operations in China. From the AP:
If it becomes a situation where we would have to obtain (U.S.) license on a tool-by-tool basis, that will disrupt the supply of equipment … and we could face difficulties in operating (Chinese) fabrication facilities at a much earlier point than the late 2020s.
If we face problems that make it difficult for us to operate our Chinese fabrication facilities including the Wuxi plant, we are considering various scenarios, including selling those fabrication facilities or their equipment or bringing them to South Korea.
In addition to Samsung’s NAND plant in Xi’an and SK Hynix’s DRAM plant in Wuxi, South Korea sells 60 percent of its semiconductor products to China. In 2021, that was $523 billion worth of sales, which accounted for nearly 40 percent of South Korea’s semiconductor exports. South Korean chip manufacturers heavily rely on Chinese components and cutting them off from such a valuable market could have dire economic impacts. Beijing has threatened retaliation should South Korea join the US in its economic war efforts.
Japan’s chip equipment- and material-makers would be hit hard as its global players are concentrated in those areas, and exports of semiconductor manufacturing equipment to China have grown in recent years. From the Japan Times:
“There is still some uncertainty over how the restrictions would work, but if we interpret them straightforwardly, the damage to Japan’s chip industry would be massive,” said Akihiro Morishige, a researcher at the Mitsubishi Research Institute. …
Last year, the value of such exports hit a record ¥3.3 trillion ($23.67 billion at current exchange rates), and China accounted for the largest share, at about 39%. This year, the January-September figure alone has already topped ¥3 trillion. …
Industry minister Yasutoshi Nishimura said earlier this month that the government is communicating with the U.S. and conducting discussions with domestic companies.
Both Japan and South Korea are already facing economic challenges, and trade wars with China could be devastating. Japan’s economy shrank in the July-September quarter. The annualized 1.2 percent contraction in gross domestic product came despite the yen’s 30 percent depreciation over the same time.
Much of the 5.7 percent drop in Korean exports in October year-on-year is due to Covid slowdowns in China. As a result, the country posted a trade deficit of $6.70 billion, bigger than a shortfall of $3.78 billion in September and the seventh consecutive month of imports outweighing exports.
The Bank of Japan’s balance sheet already exceeds the size of the $5 trillion economy. Inflation, meantime, is racing well ahead of the 2 percent target at a moment when a weak yen has Japan importing commodities at elevated prices.
China’s share in Japanese trade was 20 percent in the January-September period, indicating Japan’s dependence on the Chinese market. Japan is trying to increase its chipmaking, but would still be hit hard if it were cut off from the Chinese market. From Tech Monitor:
Japan is rapidly ramping up its domestic chipmaking production capabilities, with more than 600 billion yen worth of investments announced so far. Earlier this month, the Japanese government revealed an investment of approximately $500 million towards a new semiconductor venture called Rapidus led by Sony Group Corp and NEC Corp. This new investment comes off the back of multiple investment pledges to TSMC, Kioxia Corp, Western Digital Corp, and Micron Technology, as the country lures Western capital to its shores. …
But being cut off from the Chinese market – whether assembly or rare earths – could pose a major challenge for any such ventures. The Global Times spelled out what this will likely mean for Japan:
If Tokyo succumbs to US pressure and align with Washington’s lead on export restrictions to China, a major semiconductor market in the world, it will not only hurt the interest of semiconductor enterprises currently doing business in Japan, but also weaken the attractiveness of the industry for global investors.
China does have a history of using its economic clout as leverage and Japan has experienced it first-hand. In 2010, Beijing blocked rare earth exports to Japan in retaliation for the Japanese arrest of a Chinese fishing boat captain near disputed islands. Most of the world’s rare earth processing takes place in China.
Japan, amongst other countries, has plans to cut its dependence on Chinese rare earths, but there’s no easy remedy. As the Japan Times explains:
However, a quick fix is unlikely, particularly given the high level of dependence of some countries, including the U.S., and the limited investments made so far in diversifying the sources.
“At present, there is no ‘going around’ China when talking about commercial scale operations consuming rare earths,” said Daan de Jonge, a consultant at London-based commodity research company CRU.
“China has the most significant share of processing capacity at every step of the rare earths supply chain, so it is likely that the vast majority of rare earth magnets will have gone through China, or at least relied on China at some point,” he added, pointing out that this includes magnets for electric vehicles as much as those used in military and defense applications.
“Even if a non-China mine produces an ore, separates their own NdPr (neodymium and praseodymium), and sells that to a Japanese magnet maker, they will still have to import dysprosium from China for high temperature applications.”
Just how devastating would an escalating trade war be for Japan? Nikkei Asia reports:
If 80% of Japan’s imports from China — about 1.4 trillion yen ($9.4 billion) worth, including raw materials and parts — were disrupted for two months, Japan would not be able to produce a wide range of products, including home appliances, cars, resins, clothing and food products. About 53 trillion yen ($360 billion) worth of production would disappear, according to estimates by professor Yasuyuki Todo and his colleagues at Waseda University … Product prices would also increase. According to Owls Consulting Group, a Tokyo-based supply chain research firm, if 80 major products, including home appliances and cars, were to stop imports from China and switch to domestic production or procurement from other regions, costs would increase by 13.7 trillion yen annually. That is 70% of the total net income of manufacturing companies listed on the Prime Market of the Tokyo Stock Exchange.
Much like the Europeans hurting themselves more than their intended target Russia, the same fate would await the US allies in the Pacific in the economic war on China. While the Japanese and South Korean economies would go into a downward spiral, the entire goal of stopping advanced chip production in China is seen as unrealistic.
It’s believed China could gain the capabilities to produce advanced chips in as little as a few years. On the other hand, the US would ensure its allies remain firmly in its camp – albeit on the losing side. According to China Briefing:
The supply chain issue for the semiconductor industry is gradually starting to whittle down towards the geographical presence of where the required manufacturing mineral components are to be found. The looming difficulty for the United States is that it does not possess enough of these commodities itself and must rely on imports. Australia is a main supplier and will continue to be so, while Japan and South Korea also have reserves of some of these. This is why the US is so involved in East Asia – it has to be, in order to keep ahead of the semiconductor and tech battles, it needs to keep these countries onside. Yet balanced against this as several countries that the United States has decidedly poor relations with – China, Russia, and Turkiye being just three. That, coupled with global energy battles also favoring China and Russia, means that the US has to be very careful in how it organizes its supply chain management.
While the US plays whack a mole trying to keep China and Russia down, the latter continue to organize Eurasia through the Shanghai Cooperation Organization, Eurasian Economic Union, Regional Comprehensive Economic Partnership, and other groups.
The Conference on Interaction and Confidence Building Measures in Asia decided at its recent summit in Kazakhstan to become a full-fledged organization for economic and security cooperation in Asia. The 27-member group accounts for two-thirds of global GDP.