Korea to reduce reliance on Japanese materials affected by China's export control

Yoon Chang-hyun, center, acting head of the Office of Industrial Resource Security at the Ministry of Trade, Industry and Resources, speaks at the Korea Chamber of Commerce and Industry in Seoul, Thursday, during a meeting discussing supply chains. Courtesy of Ministry of Trade, Industry and Resources

Korea has begun efforts to reduce its dependence on Japanese materials affected by China’s recent export ban on dual-use goods that could enhance Japan’s military capabilities, effectively helping Beijing achieve one of its intended goals with the measure.

Despite President Lee Jae Myung’s cautious stance on intervening in the conflict between Korea’s two neighbors, the economic relationship between Seoul and Tokyo shows signs of weakening in the wake of Beijing’s export controls — the move appeared to be a retaliatory response to Japanese Prime Minister Sanae Takaichi’s stated willingness to get involved in a potential military clash between China and Taiwan.

“The government will preemptively review whether it is possible to replace imported Japanese items subject to China’s export curbs on dual-use goods in order to minimize negative impacts on supply chains,” the Ministry of Trade, Industry and Resources said Thursday, following a ministerial meeting with officials from the semiconductor, display, battery and automotive industries.

Chinese President Xi Jinping, left, and Japanese Prime Minister Sanae Takaichi / AFP-Yonhap

The meeting was held two days after China announced its export ban on Japan, coinciding with Lee’s state visit.

During the meeting, experts did not rule out the possibility that the measure could affect various domestic industries and trade, citing the highly interconnected supply chains among the three countries. Korean companies have long produced end products using processed materials from Japan, while Japanese manufacturers have relied on Chinese minerals to produce those materials.

“Japan’s 2019 export controls on Korea prompted us to reduce dependency on Japanese materials by building domestic production facilities and seeking alternative sources,” said Yang Joo-young, head of the economic security and trade strategy office at the Korea Institute for Industrial Economics and Trade.

“Given the interconnected supply chains among Korea, China and Japan, a shock in one country could easily ripple through the others. The government should therefore continue investing in vulnerable sectors.”

In 2019, when Japan restricted exports of key materials for semiconductors and displays to Korea in retaliation for the Korean Supreme Court’s ruling that Japanese firms must compensate victims of wartime forced labor during the 1910-45 colonial period, the Moon Jae-in administration sought to foster domestic production in the materials, components and equipment sectors. However, their reliance on Japan declined only slightly, from 16.9 percent in 2019 to 13.9 percent in 2024.

“We will strengthen the competitiveness of domestic material, component and equipment industries to better prepare for external shocks to our supply chain,” Vice Industry Minister Moon Shin-hak said.

The government plans to introduce countermeasures to address potential disruptions in the supply of rare earths such as dysprosium and yttrium, as well as other key minerals largely supplied by China.

A day earlier, Lee also commented on the Beijing-Tokyo trade feud during a luncheon with reporters accompanying his China trip. He acknowledged possible short-term negative impacts on Korea’s trade but said it was difficult to predict the longer-term effects.

“There isn’t much we can do right now,” he said. “If we try to step in when adults are fighting for their own reasons, we could end up disliked by both sides.”