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[David Fickling] Tall fences make bad neighbors out of Japan and Korea

To outsiders, it may seem like the deepening rift between Japan and South Korea has blown up out of a clear blue sky.

For all the wrangling over the legacy of Japan’s 35-year colonization of the Korean Peninsula, which ended in 1945, there’s far more on paper to join than to separate them. Both are Northeast Asian democracies that have close military and economic ties to the US; potent exports of electronics, cars and cultural products; and a love of seafood and beef.

After decades when postwar growth gave Japan the far wealthier population, its stagnation in recent decades has even put the two countries at roughly equivalent levels of gross domestic product per capita: $40,479 for Korea versus $43,349 in Japan.

For all that, though, there’s no strong web of ties binding these two nations. Disputes over restitution for Koreans forced into slavery under Japanese occupation are now hurting Korean sales of Fast Retailing clothing. In turn, the government in Tokyo has moved to curb exports of specialty materials to Korea’s technology giants.

Compare the Japan-Korea relationship to those between European countries, or the members of the North American Free Trade Association, or even stereotypically unfriendly neighbors like Argentina and Brazil, and you could be mistaken for thinking the two countries were locked in a cold war already.

Just 7.5 percent of Korea’s $1.07 trillion in bilateral trade is with Japan, making the European Union, the US and China more important partners. The picture is even more dramatic in the other direction. Japan’s $80 billion in bilateral trade with Korea amounts to just 5.8 percent of its $1.38 trillion total.

That would seem to go against economic theory. The gravity model of trade predicts that commerce between two countries is largely a result of their respective outputs and the physical distance between them. Two large and adjacent economies ought to be quite closely integrated. That’s not what’s happened: Japan’s exports to Korea are far less than the gravity model would predict, and the same is true in the opposite direction.

Foreign direct investment statistics paint a similar picture. The stock of Korean assets in Japan in 2012 was about 1.8 percent of its outbound stock and a smaller sum than could be found in Canada, Vietnam, India or Germany -- not to mention the US, China and Hong Kong, which together account for almost half the total. Japanese investments in Korea, similarly, come to about 2.5 percent of its total, well behind Brazil, Thailand, Singapore or Australia.

The cold war even shows up in foreign exchange markets. Trading between the Korean won and the Japanese yen is so slight that the Bank for International Settlements doesn’t even list turnover on the currency pair, although it does have data for the yen against the Australian, New Zealand and Canadian dollars, the Turkish lira, the South African rand and the Brazilian real.

Human factors underline the chilly relationship. More Japanese migrate to the UK, Australia and Brunei than to Korea. While Koreans represent the largest migrant group in Japan (Softbank Group Corp. founder Masoyoshi Son is of Korean-Japanese heritage, as is Lotte Shopping Co. Chairman Shin Dong-bin and former Korean President Lee Myung-bak), they face prejudice even after generations of residency.

Tokyo’s longtime Gov. Shintaro Ishihara was reelected multiple times after making notorious derogatory remarks against people hailing from Japan’s former colonies in a 2000 speech. A 2011 protest by right-wing groups against Korean pop culture in the city reportedly attracted more than 2,000 demonstrators. For its part, Korea banned Japanese cultural products outright until 1998.

Ties aren’t improving much. More Japanese vacationed in Korea in 2009 than in 2018; Japanese have fallen from about two-fifths of total visitors there a decade ago to around a fifth last year, despite a modest recovery in the past couple of years.

In one sense, such links shouldn’t matter. The Golden Arches doctrine -- that globalization inevitably begets peace, and no two countries with a McDonald’s have ever gone to war -- has never really held true.

Nonetheless, a more limited version of that view has merit. Close links in finance, migration and culture may not prevent war, but they can at least provide a countervailing force when tensions flare -- something that seems to have kept relations between Singapore and Malaysia, China and Taiwan, and even the US and China far more stable than one might have predicted.

The alternative of cold peace pursued by India and Pakistan offers a more fraught path. Japan and Korea, both dwarfed in their neighborhood by an increasingly confident China, ought to work harder to deepen their mutual ties. It’s better to stand together than to fall apart.

David Fickling
David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies.