Life just got a fraction tidier for chip makers. The geopolitical backdrop may still be a million miles from the spotless order of a semiconductor fab, but trade relations between Japan and South Korea, two key countries for the industry, may be less messy than feared.
Last month, Tokyo tightened controls on exports of three chemicals crucial for making memory chips and screens. Japan dominates the supply of those materials, and Korean giants like Samsung Electronics and
could struggle to produce semiconductors without them.
That could have knock-on effects for many investors: Samsung stock is widely owned by institutions in the U.S. and elsewhere, as one of the largest constituents in MSCI’s key emerging markets index.
While Japan cited national security, this is probably tied to a dispute over wartime reparations. Last week, Japan removed South Korea from a list of preferential trading partners, introducing extra paperwork for exports of hundreds more Japanese products.
On Thursday, however, Japan’s government said it had approved shipments of a key material used in chip manufacturing to South Korea for the first time since the curbs were introduced.
To be sure, relations still appear tense. The extra red tape will persist for now. But the approval should give investors extra confidence that Japan’s restrictions were merely designed to show Seoul its bargaining power, rather than cause serious harm.
Indeed, the market had appeared relatively relaxed. Samsung and SK Hynix shares actually rose when the restrictions were imposed. Investors thought they would benefit from higher memory prices, while avoiding serious disruption.
A major snarl-up at the South Korean chip companies could ripple through the global supply chain. The South Koreans have around three-quarters of the market for DRAM, a type of memory chip used in smartphones, servers and computers. But that would hurt Japanese electronics firms and others—making this something of a worst-case scenario.
Of course, relations between the two capitals could worsen. And there could be accidental damage if, for example, export holdups lead to inventories running out in South Korea.
Meanwhile, U.S.-China trade tensions have flared up again, and the White House may stop the U.S. government doing business with China’s Huawei. That seems to show U.S. attitudes hardening anew, just a month after President Trump suggested that American chip companies would be allowed to sell some products to Huawei after all.
But at least this week brought a smidgen of good news for the semiconductor business.
Write to Jacky Wong at JACKY.WONG@wsj.com
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