The Paradox of Japan's Export Restrictions... South Korea's Economic Dependence on Japan Drops to Single Digits

Japan Export Restrictions Lead to Sharp Drop in Dependence on Imports from Japan: 9.8% (1Q) → 9.5% (2Q) → 9.5% (3Q) → 9.0% (4Q)
Last Year's Overall Dependence on Imports from Japan Falls Below 10% for the First Time Since 1965 Statistics Began

[Asia Economy Reporter Kim Hyewon] Since Japan's export control measures in July last year, other industries rather than the materials and components industry have been more affected, resulting in a decreased dependence of the Korean economy on imports from Japan.

According to the report "One Year After Japan's Export Controls: Industrial Impact and Policy Tasks," released by the Korea Chamber of Commerce and Industry (KCCI) on the 26th, the import share of materials and components slightly increased compared to before the implementation of Japan's export controls. In contrast, the overall industry's import share from Japan decreased compared to before the export controls, with last year's import share from Japan falling to single digits for the first time since statistics began.

In fact, the quarterly import share of materials and components from Japan last year was 15.7% (Q1) → 15.2% (Q2) → 16.3% (Q3) → 16.0% (Q4), showing a slight increase after the export controls. Meanwhile, the overall import share from Japan showed a downward trend: 9.8% (Q1) → 9.5% (Q2) → 9.5% (Q3) → 9.0% (Q4). This indicates that industries other than the targeted materials and components were more affected.

As imports from Japan decreased, the proportion of imports from Japan (47.58 billion USD) in Korea's total imports (503.34 billion USD) last year was 9.5%, dropping to single digits for the first time since trade statistics began in 1965.

A KCCI official evaluated, "Immediately after Japan's export controls last year, close cooperation between the public and private sectors led to efforts to stabilize supply through localization of key items and diversification of imports. Japan also proceeded with export permit procedures for the regulated products, so contrary to initial concerns, there was no significant disruption in the supply of materials and components." He added, "The reduction in Japan's import share in industries other than materials and components seems to be part of a trend of loosening economic ties with Japan, accelerated by the export controls." In fact, a survey conducted by KCCI right after Japan's export controls last year showed that two-thirds of companies responded that "trust in business relations with Japanese companies weakened."

KCCI and KOTRA Joint Survey: One Year After Japan's Export Controls, 'No Damage' 84% vs. 'Damage' 16%

Due to the decline in dependence on Japan and other factors, Korean companies appear to have largely escaped direct impacts from Japan's export controls.

In a recent survey (June 15?30) jointly conducted by KCCI and KOTRA targeting 302 companies engaged in trade with Japan (based on responses), 84% of respondents said they experienced "no damage" from Japan's export controls. Only 16% reported "damage," with the most common specific impact being "increased transaction time" (57%), followed by "reduced transaction volume" (32%) and "transaction discontinuation" (9%).

Regarding the impact of Japan's export controls on corporate competitiveness, 91% answered "no significant impact," while only 9% said there was an impact. Contrary to the initial widespread concerns at the start of the export controls, the lack of major damage to domestic industries is attributed by KCCI to the swift responses by the government and companies and the reduced dependence on imports from Japan.

78% Say Government's Response to Japan's Export Controls Was 'Appropriate'... Most Helpful Policy: 'R&D Support' (42%)

Regarding the government's response measures to Japan's export controls, 85% of respondents gave positive evaluations. Among government policies, 42% of companies cited "research and development (R&D) support" as the most helpful. This was followed by "supply chain stabilization" (23%), "regulatory improvement" (18%), "win-win cooperation between large and small businesses" (13%), and "support for overseas mergers and acquisitions (M&A) and technology introduction" (3%).

Policies that need improvement to better respond to export controls were identified as "regulatory improvement" (38%), "R&D support" (22%), "supply chain stabilization" (19%), "win-win cooperation between large and small businesses" (14%), and "support for overseas M&A and technology introduction" (6%), in that order.

M&A is recognized as a key strategy to quickly secure competitiveness in the materials and components industry, but currently, few companies are actively conducting specific M&A. Only 3% of companies in this survey said they "have acquired or attempted to acquire companies," indicating a need to strengthen support policies to promote M&A.

KCCI Calls for ① Additional Risk Assessment ② Continued Private Sector Cooperation ③ Supplementing Materials and Components Policies in Response to Japan's Export Controls

KCCI noted that while the limited industrial damage from Japan's export controls is fortunate, given the lingering tensions related to the forced labor compensation ruling, it is necessary to assess risk factors and prepare countermeasures.

Although trade volume between Korea and Japan is decreasing, Japan remains an important economic partner, and private sector exchanges and cooperation should continue. It also pointed out that Japanese companies increased investment in Korea immediately after the export controls, and that Japanese research institutes and media emphasize the need for business cooperation with Korea.

In fact, about half of the companies surveyed expressed the opinion that cooperation with Japan should be maintained at least at the current level.

KCCI also urged reviewing and supplementing existing policies to ensure that measures for materials and components, such as technology internalization, lead to tangible results. Specific recommendations include significantly increasing government support for R&D, strengthening M&A support policies, expanding demonstration test infrastructure to connect developed products to final demand, and linking materials and components policies with the reorganization of the global value chain (GVC).

Kang Seok-gu, head of the Industrial Policy Team at KCCI, said, "Last year's Japan export controls struck a weak point in our industry but turned into an opportunity for a turnaround. Looking back over the past year, while there were short-term achievements, going forward, we need to solidify policies with a broader perspective to review the entire industrial ecosystem and enhance competitiveness."

This content was produced with the assistance of AI translation services.