The rift between two of the United States’ strongest allies continues to grow, to the detriment of Americans and the benefit of China and North Korea.
The Associated Press reports that Japan is in the process of formally removing South Korea from its “white list” of countries granted preferential trade status. Preferential status allows companies to have cargo shipments approved in bulk rather than on a case-by-case basis. It is a valuable tool for modern industry.
For example, if Business A wants to build 5000 units of product X, and Business B has component Y that is used to make product X and comes in bundles of 50 to a pallet, Business A will need to get authorization 100 times, not just once, for its shipment. This takes time.
If Business A determines it needs a different component partway through the construction process, the delays mount. Meanwhile, opposition business C, facing no such delays, can see what Business A is doing and ramp up their own production, theoretically beating A to the market with A’s own idea.
The notion of rapid delivery is key to the modern supply chain, and it is often categorized as “Just In Time” or JIT processes. This is being undermined by Japan’s latest trade move.
Japan is targeting South Korea in this way for two reasons. First, Japan controls the supply of many devices and components South Korean companies require, so the tactic can successfully pressure the other country. Second, they feel that South Korea needs to be pressured because South Korea has been seizing Japanese business assets without compensation.
In another sign of the increased tensions, Reuters reports that Korean Air is cutting flights to Japan, including suspending some city-to-city transit completely.
President Trump has shifted from his earlier position of not wanting America to be involved with the negotiation. Unfortunately, no overt action is yet being taken.
“It’s like a full-time job getting involved between Japan and South Korea. … If they need me, I’m there.”Donald Trump, via Reuters
Japanese officials are in the United States this week for trade talks.
China, who is a direct beneficiary of the friction between South Korea and Japan, finds its position greatly strengthened going into its own trade talks with the United States. Those are being held this week in Bejing, with very tempered expectations for positive results.