Moody's Analytics said Friday a prolonged Seoul-Tokyo trade dispute would deal a further blow to the "already depressed" global tech sector.
Japan began last week to apply tighter regulations on exports to South Korea of three materials used in smartphone displays and chips, in an apparent retaliation for Seoul court rulings that ordered Japanese companies to compensate Korean plaintiffs mobilized for forced labor during World War II.
"Our baseline is that this dispute will not drag on for months.
But if the tensions are prolonged, it will take a while for other players to catch up to Japan's technology for the three items subject to restrictions; keeping South Korea deeply dependent on Japan for its tech industry," Katrina Ell, an economist at Moody's Analytics, said in a statement.
Korean chipmakers, such as Samsung Electronics Co. and SK hynix Inc., will have difficulties finding alternative supply sources as Japan accounts for 70 to 90 percent of the production of the three materials.
Integrated supply chains have greatly benefited the global economy, through for instance, specialization and increased efficiency, the economist said.
"But the flare-ups and escalation of trade disputes this past year have proven that such integration is also a source of vulnerability, given that it is relatively easy for a country to inflict pain on trading partners by restricting or imposing barriers on the sale and flow of important goods," she said.
The weakening of one economy could increase the standing of the other, because they are competitors on a wide range of manufactured goods, the statement said.
China is another supplier to Korea for the materials, but it will likely take time for China to increase capacity. Such a situation will have adverse effects globally, and comes at an already weak time for the global technology sector, which has been on a downswing for more than a year, it said. (Yonhap)