Semiconductor equipment still has a long way to go to "de-Japanize"! South Korea's trade deficit with Japan has increased significantly

It has been nearly two years since the Japanese government tightened export controls on South Korea in July 2019. In order to counter Japan's export controls, the South Korean government has introduced "de-Japanization" measures, striving to localize materials, semiconductor equipment and other items that are highly dependent on Japan. However, South Korea's semiconductor equipment still has a long way to go to "de-Japanize", and South Korea's trade deficit with Japan has increased significantly.

Nikkei reported on the 25th that Japan has tightened export controls on South Korea since July 2019, and it has been nearly two years. In order to counter Japan's export controls, South Korea has introduced policies to develop the materials, parts, and semiconductor equipment industries, providing subsidies, tax incentives and other measures. The goal is to localize items that are highly dependent on Japan and thereby promote "de-Japanization" measures. However, South Korea still has a long way to go in terms of "de-Japanization" in semiconductor equipment, and its trade deficit with Japan has once again widened.

According to reports, the Korea Trade Association pointed out that South Korea's trade deficit with Japan increased by 34% to US$10 billion from January to May 2021 compared with the same period last year; compared with the same month last year, South Korea's trade deficit with Japan has expanded for 13 consecutive months. The expansion of South Korea's trade deficit with Japan also shows that the South Korean government's "de-Japanization" strategy is regressing.

The main reason for the sharp increase in South Korea's trade deficit with Japan is the surge in imports of semiconductor equipment. From January to May, South Korea imported $2.9 billion worth of semiconductor equipment from Japan, a 55% increase from the same period last year; imports of "fine chemical raw materials" including semiconductor materials also grew by 12%.

The report pointed out that the Korean semiconductor industry pointed out that "without Japanese products, we cannot fight." The reality is that Samsung is seeking to strengthen its relationship with Japanese suppliers in order to win over rivals such as TSMC (2330) in the most advanced technology.

Yonhap News Agency reported on the 27th that South Korea's trade deficit with Japan, which had been declining sharply since Japan strengthened its export control measures in July 2019, has expanded again. If the expansion rate from January to May continues, South Korea's annual trade deficit with Japan this year (2021) is expected to return to the level before the "Don't Buy Japanese Products" campaign.

Since 2004, South Korea's annual trade deficit with Japan has been about US$20 billion to US$30 billion. In 2019, the trade deficit shrank to US$19.2 billion, a record low, but increased to US$20.9 billion in 2020.

According to preliminary statistics released by the Semiconductor Equipment Association of Japan (SEAJ) on June 17, sales of Japanese-made semiconductor (chip) equipment in May 2021 (3-month moving average) surged 48.6% from the same month last year to 305.405 billion yen, marking the fifth consecutive month of growth and the largest increase in 46 months (49.9% since July 2017). Monthly sales exceeded the 300 billion yen mark for the first time in history, continuing to set an unprecedented record since 2005, when data was available for comparison.