China treads a fine line as it seeks to mediate in Japan-South Korea trade dispute
- Foreign ministers from the three Asian countries are in China for three days to discuss trade and cooperation.
- It comes amid an escalating trade fight between Japan and South Korea which started in July, when Tokyo placed trade restrictions on three chemical materials widely used by South Korean companies that make semiconductors.
- Now that China is mediating, the U.S. will likely get involved too, said political analyst Paul Triolo from Eurasia Group.
China appears to be stepping up to mediate between Japan and South Korea as their trade battle intensifies — a move that could prompt the U.S. to get more involved in the region, one expert says.
Foreign ministers from the three Asian countries are in China for three days to discuss trade and cooperation. It comes amid an escalating trade fight between Japan and South Korea which started in July, when Tokyo placed trade restrictions on three chemical materials widely used by South Korean companies that make semiconductors.
Foreign ministers from the three Asian countries are in China for three days to discuss trade and cooperation. It comes amid an escalating trade fight between Japan and South Korea which started in July, when Tokyo placed trade restrictions on three chemical materials widely used by South Korean companies that make semiconductors.
At the trilateral meeting, China's Foreign Minister Wang Yi called on Tokyo and Seoul to resolve their differences "through dialogue." He also added: "China will work with South Korea and Japan to continue to expand and deepen our cooperation jointly to maintain multilaterialism and free trade."
The summit is the ninth time that top diplomats from China, Japan and South Korea are meeting together. It did not come as a result of the growing bilateral trade tensions.
Now that China is mediating, the U.S. will likely get involved too, since Seoul and Tokyo have always been Washington's allies, said political analyst Paul Triolo.
"From the U.S. perspective, this is a lose-lose confrontation, which could also inadvertently benefit China," said Triolo, practice head of geo-technology at Eurasia Group.
"The Trump administration will not want to leave the mediation to China, but will focus on trying to calm the rhetoric around the dispute and urge caution in Tokyo in terms of the export control issue creating any serious disruptions to supply chains around semiconductors," Triolo told CNBC in an email.
Analysts have warned that the spiraling dispute could cause serious disruptions to global semiconductor supply chain. The conflict has already adversely impacted sectors such as tourism, airlines, consumer goods in both countries.
The conflict shows no signs of abating, with both sides taking retaliatory measures against each other. Japan removed South Korea from its "white list" — a list of trade partners it deems trustworthy. Days later, Seoul announced it would also drop Japan from its own preferential list from September.
What's at stake for China
Waqas Adenwala, Asia analyst at the Economist Intelligence Unit said it may be "awkward" for China to mediate in this dispute, as both South Korea and China were victims of Japan's invasion and brutal killings during World War II.
While relations between Japan and China have since warmed, and both sides have established a strategic relationship, said Adenwala, "that is not the case for Tokyo and Seoul right now."
The situation can also be "tricky" for Beijing, said Adenwala.
"China on one hand wants to help Korea and Japan to de-escalate tensions, so that it can benefit economically in increased trilateral trade. On the other hand, China could potentially benefit politically and diplomatically if the two U.S. allies' relationship worsens because it then weakens the U.S.'s influence in the region," he said.
Kelsey Broderick, analyst at the policy research firm Eurasia Group, also alluded to the fact that China will have to tread carefully as it weighs its decisions on the Japan-South Korea dispute.
"While China has an interest in being seen as a promoter of free trade and maintaining good trilateral relations, the possibility for Chinese companies to benefit from a Japan-South Korea decoupling will limit Beijing's interest in becoming too involved in the dispute," Broderick said in a note on Wednesday.
What's at stake for the US
The trade dispute has derailed an intelligence-sharing pact that Japan, South Korea and the U.S. previously signed.
Seoul announced Thursday it would scrap the military pact — which is crucial in monitoring North Korea's nuclear threat and ambitions. The cancellation came a day after South Korean news agency, Yonhap News, reported a lack of progress in bilateral talks between the two countries' foreign ministers met.
The agreement — formally known as the General Security of Military Information Agreement — allows the three parties to share military intelligence, including information about Pyongyang.
Before South Korea announced the cancellation of the security pact, Adenwala told CNBC the agreement is primarily a bilateral deal between Japan and South Korea, "but the Agreement has helped to ensure that the U.S. allies in the region are both on the same page in their defence mechanism, especially against North Korea."
If South Korea decides not to renew it, Seoul can still share information with Tokyo through Washington, but "it would create lags and therefore compromise their effectiveness," he said.
— Reuters contributed to this report.