UPDATE: Trade Wars and the Shifting Supply Chain Landscape

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By Todd Burke, Vice President of Business Development

Having spent almost 23 years at Smith, the world’s largest open-market distributor of electronic components, I’ve witnessed various market disruptions and shifting supply chain dynamics. In this blog post, I share my perspective on the supply chain ramifications of the Japan-South Korea trade dispute and how Smith can help navigate these complex situations with valuable market insight.

Since I released my last article on the Japan-South Korea trade dispute a couple of weeks ago, some noteworthy events have occurred. As Smith continues to closely follow this trade dispute, I’ve broken down the latest key facts that customers must consider before sourcing components.

On August 7, the Japanese government announced that it had granted an export permission for high-tech material to South Korea, its first since the feud between the two countries began in early July. But the announcement from Japan’s Industry Minister, Hiroshige Seko, also came with a stark warning: Tokyo would be willing to expand export restrictions beyond the three chemicals affected if South Korea were to misuse the materials.

The process for South Korea to receive export permissions for the specialty materials from Japan has ended up only taking a little over 30 days to complete. It was originally projected that Japan’s export restrictions on South Korea would take up to 90 days. I have cautioned Smith’s customers to not use this instance as a guidepost for Japan’s future exports to South Korea. Some export restrictions of the specialty materials could take much longer than 30 days to complete. I recommend that customers stay vigilant of their memory supply needs and work with Smith on accommodations to avoid potential interruptions.

In spite of being briefer than expected, the shipping delay still caused uncertainty across the market. DRAM pricing has risen 18% since the beginning of July. As a result, Smith is also expecting to see longer lead times for multichip packages (MCPs). Component pricing conditions are prone to quickly change as the trade dispute continues to unfold. With eight offices across Asia, including one in Seoul, Smith can monitor the latest news and ongoing supply chain shifts as they occur.

Another important situation to keep an eye on is South Korea’s reprisal efforts against Japan. Both countries have now removed each other from their preferred list of trading partners. Last month, Japan decided to remove South Korea from its whitelist, putting in place harsher export restrictions. On August 12, in retaliation, the South Korean government has officially removed Japan from its list of preferred trading partners. Specifically, South Korea created a new trade category in which to place Japan.

The trade feud between Japan and South Korea has not had any intervention since it began in July, up until just recently. Wary of the potential global effects, China stepped in to utilize its regional influence and promote economic integration. Starting on August 21, Beijing hosted the foreign ministers for three days. China acted as a mediator to help the two countries potentially reach a trade compromise and promote multilateralism.

As international discussions between Japan and South Korea continue to take place, I will provide more brief updates distilling the important details. Our team of international sales representatives and procurement specialists will extend additional updates and work with customers to let them know how their global supply chains might be affected moving forward.

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