At stake, chips: Japan-South Korea trade spat

Hello and welcome to The Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world. India's Hindu nationalist government is on a mission. In the state of Assam, it's declared 4 million people, overwhelmingly Muslims, to be illegal immigrants. It's likened them to termites, and is planning 10 new detention centers. That drives just the kind of sectarian division that benefits the ruling party. And it's true that on average Americans work longer hours than their European counterparts. But it wasn't always this way. So why have transatlantic times of toil been diverging for 40 years? First up, though, they are neighbors who share a friendship with America but not with each other. Political tensions between Japan and South Korea date back well over a century, but recently the relationship has deteriorated sharply. At the beginning of the month, Prime Minister Shinzo Abe limited South Korea's access to Japanese chemicals that are essential to its semiconductor industry. South Korea manufactures 60% of the global supply of memory chips, so the embargo threatens world market for phones, computers, and just about every other kind of electronic gizmo. Mr. Abe's decision bears the hallmarks of a trade approach adopted by President Donald Trump. The rules, it seems, are changing, eroding established global norms that have prevented trade disputes from spiraling out of control.

So Japan on July 4th began to restrict supplies of 3 different industrial chemicals to South Korea.

Simon Rabinovich is our Asia economics editor.

The chemicals sound relatively obscure, but they're actually critical to the manufacture of semiconductors and smartphones more generally. And this is significant because Japan produces roughly 90% of the global supply of these 3 different chemicals. South Korea, in turn, produces about 60% of the world's supply of memory chips using these chemicals. And these memory chips go into everything from smartphones to computers to virtually any electronic device that you can think of. So it's a regional trade dispute, but it's one that has serious global consequences.

And how has this spat come about?

There is a long history to it. Japan was the colonial occupier of South Korea in the first half of the 20th century, did all kinds of nasty things then, including using South Korean so-called comfort women effectively as sex slaves for its military. Another part of the colonial rule was forced wartime labour. Now, that is at the heart of the current dispute because late last year, the South Korean Supreme Court ruled that Koreans could seek punitive damages from Japanese companies. Now, that incensed Japan because Japan believed that under the terms of a 1965 agreement, they had effectively resolved the dispute and there wouldn't be any further reparation claims. Since then, there's been a downward spiral between the two countries. There's even been a little bit of a military provocation between them when a South Korean ship locked its radar onto a Japanese surveillance plane. And then in the midst of all that, Japan came out with this announcement of the export restrictions, and, and that has really angered and worried South Korea. South Korean Businesses are talking about organizing boycotts of Japanese goods. Japan is intimating that it might widen the export restrictions from the 3 chemicals to as many as 850 different products and is talking about the idea that South Korea might not be a reliable trading partner. So it's got the potential to really become a very nasty dispute.

This strong-armed way of tackling trade issues has echoes of the way Donald Trump has been throwing around new trade rules. Do you think the way he's been acting has any influence here?

I think it does. Just the general mood is very different from what it was a few years ago. Trump has been threatening, in fact, both South Korea and Japan with tariffs.

Our goal is to reduce our trade deficit with Japan, remove trade barriers and barriers of all kinds so that U.S.

exports will really have a fair and very profound footing. So the idea of using trade as a tool in political disputes is something which I wouldn't say it's been legitimized by Trump, but it's certainly been normalized or it's becoming normalized. A second point is the way in which Japan is hitting out at South Korea is by identifying products where South Korean companies rely on Japanese suppliers, and so therefore weaponizing its supply chain. That's something which of course America has done vis-à-vis China with the way that it's, you know, first against ZTE and more recently against Huawei threatened to choke off supplies of key products ad hominem. Japan has not yet cited national security as a justification for what it's doing against South Korea, but it seems to be laying the groundwork for that. Now, Japan's been very careful to say that these are not outright export blocks. It's more just slowing the process by which South Korea would obtain these products. So they're clearly concerned about the potential for South Korea to challenge these restrictions. But, you know, the way in which they're doing them, it certainly does carry echoes with Trump's approach to trade.

So are there other countries using this tactic, this sort of, well, using trade rules for political ends, weaponizing them, if you like?

So the invocation of national security in trade disputes is something that is beginning to happen. There was a WTO dispute a couple months ago between Russia and Ukraine over Russian trade restrictions, and Russia cited national security for that. The bigger picture is that these kinds of trade disputes really begin to tear at the fabric of the international trading system. You know, the global trading system is predicated on deeply integrated supply chains, especially at the regional level. So, you know, what's happening between South Korea and Japan has knock-on consequences for the entire global tech sector. Now, it's still very early, so we're not seeing seen much in the way of negative fallout yet, but if it persists, you know, potentially you'll have paralysis in terms of the supply of memory chips, which then will limit the supply of everything from smartphones to laptops. So that's quite serious. And in terms of the norms of the way that trade operates, the cavalier way in which countries would cite national security as a risk, the willingness to weaponize supply chains, all that tears against the fabric of the global trading system. So it is very worrisome.

So how then to solve this dispute between two countries that share such bad blood?

Well, thankfully the global trading system is not dead just yet. The WTO still does exist and Japan and South Korea will be taking their case to the WTO General Council, which is meeting July 23rd and 24th. They'll lay out their arguments. That could be the first step towards a formal WTO case or perhaps to some kind of WTO-governed mediation. So, you know, the good news is that there still is enough of the existing global trading system to hopefully de-escalate this dispute. There's still room for cooler heads to prevail. And the bad news is that, you know, the negative practices that we've seen over the past couple of years, they do seem to be spreading. So, you know, whether that old system can actually hold on and play that kind of calming role is something that I think will be very much in question, you know, as this dispute goes on.

Simon, thank you very much for joining us. Thank you, Jason. India's Hindu nationalist government is on the hunt for illegal Bangladeshi migrants in the state of Assam. This could have dangerous consequences for the world's largest democracy.

At first blush, the story seems quite mundane.

Edward McBride is our Asia editor.

The Indian government is looking for illegal immigrants. But when you look a little bit closer, it becomes incredibly garish. They've set up this register of citizens, declared 4 million of just 33 million people in the state— so well over a tenth of the state's population— to be illegal immigrants on very, very slim evidence, are requiring them to prove for themselves that they are indeed citizens, and locking people up and threatening to deport them all.

To avoid the prospect of deportation, they'll need to prove they arrived in India before the 24th of March, 1971, just before Bangladesh declared independence from Pakistan. At a rally earlier this year, Amit Shah, the president of the ruling Bharatiya Janata Party, or BJP, referred to illegal migrants from Bangladesh as infiltrators and termites. He pledged to single them out and throw them out of the country.

This is all the more alarming because the people who are being put in this situation are overwhelmingly Muslim. This is a state that experienced violent communal riots just a few years ago, and those same sectarian tensions are being massively stoked by this campaign against illegal immigration. And this is a campaign that the government thinks is such a wonderful success that it wants to extend it nationwide. So it's an incredibly alarming story.

So why did they even start this? Why are they looking, if you like, for illegal immigrants or creating them?

Well, so Assam, the state in question, is divided demographically between the original indigenous inhabitants who make up around two-thirds of the population and Bengali speakers, most of them Muslim, who arrived largely in colonial times when all of the subcontinent was ruled by the British. And that division has created tensions for a very long time now. The indigenous Assamese feel that their state is being taken over and the character of their homeland is being changed by this immigration from Bengal. Now, half of Bengal, the bit close to Assam in fact, is a separate country. It's become Bangladesh. And immigration, if it exists at all, is quite small. The reason that the presence of Bengalis in Assam continues to grow is because those Bengalis who are already there simply have a higher birth rate. But that sense that Assam is being overrun hasn't gone away, and politicians have long agitated for the state government or the national government to do something about it.

And so how do you think this policy is going to play out? Do you really think that these millions of people will be deported?

Well, the Home Affairs Minister in the national government, a man named Amit Shah, has insisted lots of campaign rallies all around the country that every single illegal immigrant, not just in Assam, but everywhere in the country, will be hunted down and expelled. In practice, that's impossible. Even if you accept the notion that these people really are illegal immigrants, which the vast majority of them aren't, they would have to be sent back to Bangladesh. And Bangladesh does not accept that they're illegal immigrants. It says this is an entirely internal Indian affair, and it wants no part of what comes of it. So probably they won't be deported. But already a significant number, a few thousand, are being held in detention centers within Assam as if they might be deported. And that number is set to grow. The Assamese government is planning 10 purpose-built detention centers. And of course, it's not just the people who are detained whose lives are ruined by this. There have been a spate of suicides linked to people who've been declared not to be citizens and all kinds of horrible stories about mistaken identity or unfair judgments. And then, as I said, there's this risk that communal tensions are reignited in the state. So even if it doesn't result in mass deportations, all kinds of horrible consequences could flow from what's going on.

So how does someone avoid that kind of mistaken identity, or to prove that they are, in fact, not an illegal immigrant?

Well, the terrible thing is the system is very much stacked against the people who are suddenly told they're not citizens. So, for example, anyone can denounce you, say, "Oh, my neighbor is not a citizen." The people who do that don't have to show up to the tribunals that look into these claims. Then you have to go off and find some documents to prove that you or your immediate forebears, parents, grandparents, were already present in the country in the state of Assam or elsewhere in India on a particular day in 1971. That may not sound that hard, but of course these are poor farmers, they're itinerant workers, many of them are illiterate. So the idea that these people could just drum up these documents is quite far-fetched. If you're a poor daily wage earner taking 2 or 3 or 4 or 5 days out of your schedule to attend various offices and various hearings and plead with the relevant officials, it's actually an impossibly high bar.

But suppose all of the people who are under suspicion now prove that they are in fact legal citizens. That's not the only problem with this law. It seems to be, as you say, strangely targeting a certain group.

Absolutely. So the tensions in Assam are between the indigenous Assamese and these Bengali migrants. Some of those Bengali migrants are Hindus, and some of those Hindus have been caught up in this dragnet, but the vast majority of them are Muslims. And it fits in very well with the Hindu nationalist policies of the national government led by the BJP, a Hindu nationalist party. And That's why it's been so eager to take up this cause and to expand it nationally and to really ram the point home that this is a specifically anti-Muslim measure. The BJP at the national level has actually introduced and pushed through the lower house of parliament, not through both chambers yet, a bill that would more or less automatically grant citizenship to any Hindu refugees from neighboring countries in South Asia, or indeed refugees of more or less all the other common religions apart from Islam. So the law states boldly, if you cross from Bangladesh and you're Muslim, you're in trouble. If you cross from Bangladesh and you're anything else, come on in, you know, the water's fine.

So presumably all of the flaws with the plan in Assam would be magnified if they really do want to take this nationwide, if it's going to be such a people-pleasing, or at least party-pleasing policy.

Anything that heightens sectarian tensions helps the BJP electorally. And Amit Shah, the Home Minister whom I mentioned, who's been wandering around calling people termites and infiltrators and so on, he's made those comments not just in Assam, where the current push is underway, but in other states too. For example, the neighboring state of West Bengal, where well over a quarter of the population is Muslim, and where the BJP is locked in a sort of political knife fight with a regional party that it accuses of coddling Muslims. This is a perfect sort of wedge issue whereby the BJP could heighten sectarian tensions in West Bengal, West Bengal has the legacy of partition, of many horrible episodes of violence between Hindus and Muslims. And so anything you do to heighten sectarian tensions, it may help the BJP politically, but it's incredibly irresponsible.

Thank you very much for your time, Edward.

Thanks for having me.

Is conservatism in crisis? Pulitzer Prize-winning journalist and author George Will appears in this week's episode of The Economist Asks, our interview show. He explains the dangers of what he terms crybaby conservatism.

Picking up on something progressives have specialized in for years, that is victimology, they're saying, no, no, we conservatives are victims, victims of Hollywood, of academia, of the media, etc., etc., of coastal elites condescending to us and all the rest. So, conservatism has been infected by a kind of curdled resentment of a lot of modern life. And these people have found a home in the Republican Party as it was made welcoming to them by Donald Trump, who says he too is a victim. Everyone's being mean to Donald Trump, you may have noticed. He begins every day with a burst of tweets about how people are picking on him. This is not the confident, more or less serene conservatism that that says, look, what we're trying to conserve is the American founding, the sense of individualism, the constitutional architecture of the separation of powers and all the rest. It's entirely with him personal.

To hear more, subscribe to The Economist Asks on your podcast app. If you're listening to this show on your way to work this morning in America, chances are you've got a long day ahead of you. In Europe, not so much.

The great gap between Americans and Europeans is that Americans work more hours on average every week.

Philip Coggan writes The Economist's Bartleby column on management and work.

It's tempting to think this is a great cultural difference that has always existed, but it isn't. Up until the late 1970s, Americans worked roughly the same number of hours per week as the Europeans. But there's been a shift since then.

And what happened to make that diversion start?

The big difference is not in the amount of hours you put in on a working week. Yes, Americans started to work a little bit longer hours on the average week up until 2000. It's drifted back again, but their average hours about the same as they were in the late 1970s. The difference is that European hours have declined largely because Europeans take a lot more holidays. So Europeans have legally mandated holidays, 25, 24 days in many European countries. In America, there's no legal mandated holiday. Yes, a lot of companies offer 2 weeks. There's the national holidays, but it's a lot less in terms of annual vacation.

You keep using the word average, though. I mean, there must be disparities in who works more and less.

Yeah. So the rich in particular have tended to work longer hours. That is the better paid within the American economic system. And that's because, of course, disparity in pay between those in the top 10% and those in the middle, the median of the extreme, has gone up from from 2.2 to 3.1 over the last 40 years. With that extra incentive to work long hours, the better off have tended indeed to do so. But I think there's an impression that there are investment bankers working all night long, and this justifies their very high salaries. Actually, out of normal hours working in the nighttime or weekends, that's slightly more biased towards low-paid workers. It's the cleaners, it's the security guards. They're often on the night shift not the guys at Goldman Sachs.

But considering the America-Europe divide, why has it come about at all?

I think the most likely answer is politics. So in Europe, you have social democratic socialist parties that tended to fight to limit workers' hours. In America, you haven't seen that same kind of pressure. You don't have a mainstream social democrat party, and there has been resistance to the idea of limiting workers' hours, maybe on the grounds of people should be free to work as they wish. As a consequence of that, the great fall in working hours that was happening for much of the 20th century in America suddenly stopped. And that's why if you want to limit the amount of hours that Americans work, you need to get onto Congress.

Why don't you think that there has been political pressure in America? Because this disparity is— I mean, certainly Americans are aware of it, of the notion that, you know, Europeans go on long holidays and they don't.

Well, my view, and I think a lot of work tends to bear this out, is the power of corporate lobbying is a lot stronger in America. There's no limit on campaign expenditure in America, so politicians listen to the people who pay them. And there's been research showing that the average senator's votes are quite closely correlated with the richest 20% of his or her constituents and bear absolutely no relation to the bottom 40% of their constituents because they don't meet those people and they— those people don't contribute to their funds. So corporate lobbying makes sure that Congress doesn't tend to pass those kind of laws. In Europe, that does happen.

So you don't think that there's anything sort of inherent in the American psyche about work ethic?

I don't, because if there were, that would have shown up in the 1960s and 1970s. The interesting question is why we haven't lived up to Keynes's great forecast that we'd be working 15 hours a week by now. And I think that's because Keynes assumed that most of our material needs would be easily met— the food and the heating and so on. And of course they are. But in societies, there are positional goods that people want. They want a property that is nice. They want a car that is nicer than their neighbors. They want to go on holiday to a nice place that's not filled up with thousands of tourists. They want to turn left on the plane instead of turning right. And so status is very important to humans. So we have tended to work hard because we need to do so to earn those kind of goods that gives us social status.

I don't know. If it were a matter of giving up the fancy car to work 15 hours a week, I think I might do it.

You?

I don't have a fancy car, so I don't have that option. But I do have a mortgage to pay.

Philip, thank you very much for your time.

Thank you, Jason.

That's all for this episode of The Intelligence. If you like us, give us a rating on Apple Podcasts. And you can subscribe to The Economist at economist.com/radiooffer. 12 issues for $12 or £12. See you back here tomorrow.