China Is the Winner of This Mini Trade War

(Bloomberg Opinion) -- If there was ever a time for Japan and South Korea to engage in a supply-chain spat, this isn’t it..Last week, Japan moved to restrict exports of materials used to make semiconductors and smartphone screens to its North Asian neighbor, citing grievances between the two countries dating back seven decades. The curbs threaten the flow of components that feeds the world's hunger for technology hardware. It may also hand Beijing a victory..A U.S.-China trade war and the concurrent technology cold war means that companies have started figuring out new ways to source production materials. We already know that manufacturers – not just American ones – are looking to dilute their China presence by taking an ABC (anywhere but China) policy to new facilities. That doesn’t necessarily mean factories on the mainland are shuttering, but it could mean that the next site is more likely to be built in Thailand or Vietnam. .If you’re the CEO of a Japanese chemical company, your first thought may be: This is a good thing. You’re now facing steeper competition from Chinese upstarts, which are also angling to supply materials to that South Korean semiconductor manufacturer you count among major clients. Korean firms looking to shrink their China footprint is a step in the right direction..Indeed, clients may be feeling their sourcing is too concentrated. Samsung Electronics Co., for example, puts 92% of its procurement spending into just 34% of its suppliers. The company has 10 production sites in China, six in South Korea and zero in Japan..But those South Korean manufacturers expanding in Southeast Asia may be looking for ways to mollify Beijing – by agreeing to source more from the mainland, perhaps. It may also be the case that suppliers from China, Taiwan, Europe or elsewhere see this “ABC” expansion as an opening to slip into the lineup by promising to deliver goods quickly and more cheaply to new sites..Meanwhile, Japanese and Korean suppliers that have concentrated sales on a handful of major clients in the opposing country may be considering whether to diversify. With the technology cold war now underway, new revenue sources are starting to appear on the radar in China. These semiconductor, display and electronics companies are flush with cash and ambition, making it likely they’ll provide growth that staid North Asian incumbents can’t offer. .The silver lining to Japan and South Korea’s latest feud is that the current slump in global demand is likely to minimize any impact. But even then, the third quarter is an inopportune time to crimp supply: It's right when firms build ahead of year-end hardware demand..However you look at it, old-guard technology suppliers and buyers aren’t likely beneficiaries from any interruption in the status quo. As leaders of both North Asian countries consider their next steps, they need to remember that anything driving a wedge between Tokyo and Seoul can only help Beijing. They may have leftover and justified grievances from a war 74 years ago, but there’s a potentially bigger battle ahead..To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners..Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News..©2019 Bloomberg L.P.

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China Is the Winner of This Mini Trade War

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