Japan dropped South Korea as a preferred trading partner on Friday, escalating a dispute that threatens the global supply chain for smartphones and electronic devices.
The decision to remove South Korea from a so-called white list means that Japanese exports to South Korea now require additional screening to make sure they are not used for weapons and military applications. The new restrictions go into effect August 28.
South Korea was the only Asian country on the white list. Revoking its preferred status means the country will receive the same treatment as other Asian countries and territories, including Taiwan, Japan’s Chief Cabinet Secretary Yoshihide Suga said Friday.
“This is not a trade ban,” he added.
South Korea’s president called the decision “reckless” and promised retaliation.
“If Japan — even though it has great economic strength — attempts to harm our economy, the Korean Government also has countermeasures with which to respond,” President Moon Jae-in said Friday.
A short time later, South Korean officials said they were taking steps to remove Japan from their own white list that governs trade in “strategic” items.
Moon’s ruling Democratic Party called Japan’s decision an “all-out declaration of economic war on our country” in a tweet from its official account.
South Korea’s Kospi (KOSPI) index closed down about 1%.
South Korea is Japan’s third-largest trading partner, buying about $54 billion worth of Japanese goods, including industrial machines, chemicals and cars, according to a trade data tracking tool affiliated with the Massachusetts Institute of Technology.
The standoff between the two countries started last month when Tokyo placed controls on exports of three chemical materials to South Korea. The materials — fluorinated polyamides, photoresists and hydrogen fluoride — are used to make computer chips, among other things.
The export curbs require Japanese companies to apply for licenses for each of the three chemical materials they sell to South Korea. The process can take up to 90 days.
Those restrictions are already having an impact on the global semiconductor industry. South Korea’s Samsung (SSNLF) and SK Hynix make nearly two thirds of the world’s memory chips, which are used in everything from smartphones to connected cars. Smartphone makers including Apple (AAPL) and Huawei rely on memory chips from the South Korean companies.
Samsung declined Friday to comment on Tokyo’s latest move. Asked about Japanese trade restrictions during an earnings call Wednesday, Samsung’s head of investor relations Robert Yi said the company was “facing difficulties” because of Tokyo’s export controls “and the uncertainties that this new process would bring.”
An SK Hynix spokeswoman said in a statement Friday that “certain difficulties are expected in securing materials” now that South Korea is off the white list. She added that the company is working to stockpile inventories and diversify suppliers.
Tension between the two countries has been rising for months, stemming in part from Japan’s colonial rule over the Korean peninsula in the early 20th century. South Korea’s top court recently ruled that its citizens can sue Japanese companies for using forced Korean labor during World War II. Japan has denied that the two issues are linked.
Yoko Wakatsuki and Jake Kwon contributed to this report.