80th Liberation Day Korea-Japan economic relations: 80 years of competition, evolving partnership

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By Lee Gyu-lee

• Published Aug 11, 2025 6:30 AM KST

Trade, technology tie 2 nations despite ongoing political tensions

After decades of hardship under Japanese colonial rule since 1910, Korea reclaimed its independence on Aug. 15, 1945.

However, it was not until 20 years later that the two countries began a new chapter of diplomatic and economic engagement after signing the Treaty on Basic Relations in 1965.

Since then, the economic relationship between Korea and Japan has gone through a significant transformation.

It began with one-sided cooperation driven by government-led aid and technology transfer from Japan to Korea, laying the groundwork for Korea’s rapid industrialization.

Building on this, the relationship shifted to a more balanced, competitive and two-way partnership, while political and historical disputes tested the arrangement along the way. However, despite the unresolved tension, their interdependence continues to anchor the two countries as they adapt to new challenges and priorities in a rapidly changing regional and global context.

Learning and asymmetry to partnership

Up to 1990, Korea focused on learning technology and industrial expertise from Japan, which, as Asia's advanced industrial power, was instrumental in supplying the technology, capital and equipment Korea needed.

When the 1965 treaty brought substantial Japanese reparations and loans, it fueled Korea’s manufacturing sector and infrastructural projects, particularly in the heavy and chemical industries. This marked the era for active collaboration between major Korean companies, such as POSCO, Hyundai and Samsung, and leading Japanese corporations. However, it also meant heavy reliance on Japanese technology and intermediate goods, leading to chronic trade imbalances favoring Japan.

As Korea progressed through export-led growth in the 1970s and 1980s by importing equipment from Japan while exporting finished products primarily to the United States, Japan remained an indispensable partner, albeit with the upper hand.

By the late 1980s and 1990s, Korea accelerated its push for self-sufficiency in technology, investing in domestic research and development and cultivating its own industrial expertise in sectors including semiconductors, automobiles, shipbuilding and electronics.

When the Asian Financial Crisis hit in 1997, Japan supported Korea’s recovery both through multilateral frameworks led by the International Monetary Fund and via bilateral currency swap arrangements.

Rise of complex competition

As Korea’s major conglomerates began bridging the technological gap through the 2000s and gaining global competitiveness, the economic relationship with Japan grew more symmetrical. Korea succeeded in localizing the production of parts and materials and expanding globally, including into the Japanese market itself.

Since the 2000s, both countries have become rivals in global markets, especially in sectors like shipbuilding, carmaking, semiconductors, electronics and machinery. Korean corporations such as Samsung, Hyundai and LG emerged as global powerhouses, challenging Japanese incumbents in fields like smartphones, TVs and electric vehicles.

The chronic trade deficit with Japan peaked in 2010 and began to shrink as Korea diversified its suppliers and built its own industry clusters.

Political tensions and economic fallout

Despite robust economic ties, political and historical disputes intensified in the 2010s. Contentious issues such as wartime forced labor and sex slavery during Japanese colonialism and Japan’s sovereignty claim over Korea's Dokdo islets disrupted bilateral cooperation periodically.

In 2019, tensions erupted after Korea’s Supreme Court ordered Japanese companies to compensate South Korean victims of wartime forced labor. In retaliation, Japan restricted exports of key semiconductor materials to Korea and removed it from its white list of trusted trade partners. Korea responded with its own export control measures and World Trade Organization litigation, while citizens boycotted Japanese products.

In 2023, Japan lifted its semiconductor export controls, restoring trade and investment flows to pre-2019 levels.

Current trade and investment patterns

Today, the relationship is nuanced: Korean and Japanese companies often compete fiercely in fields such as cars, consumer electronics and shipbuilding. However, a web of cooperation and interdependence persist, including joint ventures, R&D alliances and co-investment in overseas markets.

Japan remained Korea’s fourth-largest trading partner, with bilateral trade reaching $77.2 billion in 2024, according to the trade ministry. Korea’s main exports to Japan include petroleum products, semiconductors, chemicals and cosmetics, while Korean imports from Japan center on machinery, semiconductor equipment and chemicals.

The rise of new industries, such as electric vehicles, batteries and digital technologies, offers fresh opportunities for partnership, as both countries target the U.S. and Europe as primary markets for advanced technology products.

Research fellow Choi Eun-mi at the Asan Institute for Policy Studies noted there is still significant untapped potential for bilateral cooperation.

“Korea has grown tremendously and now enjoys the economic status of a developed nation, but that doesn’t necessarily mean Korea is better than Japan. While Korea’s per capita GDP may be higher, there are areas in which Japan performs much better and Japan continues to have a higher total GDP in certain respects,” she said.

“Additionally, Japan maintains considerable strengths in diplomacy and holds a significant number of patents and other economic assets. In this sense, both countries should continue to identify and develop areas where they can complement each other. There are many opportunities for mutually beneficial cooperation that still need to be explored.”

She added that, in order for the two countries to move their relationship forward and unlock truly meaningful cooperation, particularly in advanced technology fields, a solid foundation of mutual trust is essential.

“To further enhance cooperation, building mutual trust is crucial — especially for technical alliances and exchanges, which sometimes require sharing highly sensitive information. That level of openness is only possible when there is a solid foundation of trust,” she said.

“In the current situation, economic cooperation is absolutely essential for both Korea and Japan … The biggest risk to the economy tends to be unpredictability and uncertainty about the future, and in the case of Korea and Japan, those risks often stem from political or historical conflicts. That’s why both sides must work to ensure these issues don’t affect the economic relationship going forward.”