There is another building trade feud that is currently occupying the attention of high tech and consumer electronics supply and customer demand networks. It includes heated trade tensions among two influential technology producing regions, Japan and South Korea, each of which are critical links to these networks.  iPhoneX

Tensions has escalated yet again with an announcement this week of South Korea formally dropping Japan as a favored trading partner.

The growing spat has more to do with history than mutual trading alliances. The history dates back to alleged atrocities by Japan on Korean nationals during World War II.  The current rift began to escalate with South Korea court rulings that required Japanese companies to pay restitution to Koreans forced into labor in their factories during World War II. In early July, Japan elected to tighten export controls on three chemicals that are essential for memory chip and LCD display production. That action broadened to a vast array of additional components that profile South Korea’s high-tech inbound supply networks and the removal of South Korea from a listing of preferred trading nations.

On Monday, South Korea elected to drop Japan as a favored trading partner, further escalating tensions among these two nations. According to reports, as of September, the process of importing Japan based products could take upwards of 15 days as compared to 5 days.

The growing tensions continue to raise concerns as to whether high profile manufacturers Samsung, LG Display, SD Hynix or other South Korea based producers can establish alternative supply agreements in order to make ongoing near and longer-term customer delivery commitments. In the semiconductor area, both Samsung Electronics and SK Hynix are taking advantage of a $6.5 billion in government funded research funds to diversify the country’s supplier networks. An estimated $52 billion in components and products are imported to South Korea from Japan.

In the meantime, component prices for memory and display components are now rising as a result of building trade restrictions.

Of additional growing concerns are the increasing notions of the weaponization of high-tech supply and demand networks as manifested in the U.S. trade and supply restrictions place on Huawei Technologies. This trend of growing nationalism among nations is ensnarling high tech producers as a strategic risk area that requires protections.

There is a further link to the escalating trade tensions among the U.S. and China since South Korea plays an influential role in efforts to persuade North Korea to relinquish a nuclear weapons threat. Both South Korea and Japan further play an influential role as alternative supply network sourcing for certain China sourced goods subject to higher tariffs. Washington therefore has a keen interest in insuring that this trade conflict does not escalate further.

Business and industry groups remain optimistic that these two nations can eventually resolve their differences and focus on shared economic interests. In the meantime, potential supply disruptions are likely a real possibility for the remainder of this year, and that could affect the availability of smartphones and consumer electronics. That is despite today’s news that the U.S. will delay imposition of tariffs on Chinese produced high tech products in order to insure that holiday customer demand is met.

The ongoing challenges for this industry’s supply and customer demand networks are likely to occupy the attention of many of the industry’s sales and operations teams for many weeks to come. Once more, the implications can extend to automotive and truck manufacturing supply  networks which increasingly have reliance on added electronics laden components and displays.

 

Bob Ferrari

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