No winners as Korea, Japan square off . . .

The issue of trust may greatly impede any restoration of normalisation, perhaps for decades . . .
SEOUL -- The most far-reaching of this year's events in East Asia has been the unravelling of on historically uneasy relationship between Korea and Japan at virtually all levels.
Never particularly warm, but still functional socio-economically in terms of bilateral trade and tourism, the relationship has entered its lowest point since 1965, when the two countries established diplomatic relations-- two decades after Japanese sovereignty over Korea ended.
This time, the relationship began to unravel when Korea's Supreme Court ruled on October 30, 2018, that Nippon Steel Corporation (successor to Nippon Steel and Sumitomo Metal Corp.) should pay reparations of KRW100 million (US$87,000 at that time) to each of four Korean plaintiffs who were forced labourers in Japan during World War II. The Japanese Government urged the firm not to pay.
In February this year, after Japanese officials refused to meet them, lawyers for the plaintiffs began seizing company assets in Korea (in the form of shares in PNR, a joint venture with Korean steelmaker POSCO). On July 26, the Seoul High Court upheld the earlier Supreme Court ruling, awarding reparations to the descendants of another seven labourers.
Japan, meanwhile, had decided to roll out a schedule of retaliation.
On July 2, it increased regulatory restrictions on Japanese exports of fluorinated polyimide, hydrogen fluoride (etching gas) and photoresists, three obscure compounds that happen to be critical in the manufacturing of smartphone display panels, microchip production, and semiconductor circuitry, respectively. Each of these end-products are critical Korean exports.
As a result of this initial round of restrictions, Japanese exporters such as Kanto Denka Kogyo (fluorinated polyimide), Showa Denko, JSR and Shin-Etsu Chemical (hydrogen fluoride), and Tokyo Ohka Kogyo (photoresists) need to file separate applications for individual shipments.
Approval takes around 90 days, an automatic 3-month delay in upstream supply chains.
As for Korean importers, such as Samsung Electronics, SK Hynix (whose Q3 operating profit plunged 93% from Q3 2018) and LG Display, the problem is that Japan itself produces 90% of fluorinated polyimide, 70% of hydrogen fluoride, and 90% of photoresists globally.
And locating alternatives of sufficient quantity and quality is proving daunting.
The unimpressive actual export value (for the period Jan-May 2019, Korean firms imported US$12.14 million in fluorinated polyimides, US$28.44 million of hydrogen fluoride and US$103.52 million in photoresists) is outweighed by the criticality of these imports for Korean exports.
Korea had been on Japan's whitelist since 2004, and was guaranteed preferential import treatment. On August 12, it removed Japan from its "white list" of preferred importers.  Listing on a country's whitelist enables importers from a country so listed to more easily import goods that have dual military-civilian application, through simplified export control procedures. Importers must otherwise obtain permission to import on a case-by-case basis.
Import restrictions on coal ash and waste recycling materials from Japan have also been imposed. Japan removed South Korea from its white list of preferred importers on August 28, a move that had been planned since as early as July 2. This action is expected to affect at least 1,000 items, ranging from car manufacturing to petrochemicals in addition to electronic devices and displays.
The move will likely further depress Korean exports, which were down 22% on-year in September, continuing a 10-month record of decline, month-on-month.
Because the Japanese and Korean supply chains, already impacted by Trump's tariffs on China and others, are mutually intertwined, ripple effects through East Asia onward across global supply chains are now appearing.
Shaun Roache, chief economist Asia-Pacific at S&P Global Ratings, says Chinese technology supply chains, which rely on Korea, could face increased delays and higher costs as well.
Korean firms are responding to shortages by stockpiling and accelerating R&D to displace Japanese sources with domestic sources. Korea's 2020 Budget, announced in August, includes US$1.75 billion to ensure self-reliance in critical components and materials.
Samsung announced within two weeks of Japan's initial export restrictions that it was working with a domestic supplier. If R&D efforts are successful, the Japanese will find themselves locked out of the Korean market permanently, just as US farmers have lost Chinese soybean markets.
But perhaps worst of all is the issue of trust, which, as Shaun Roache highlighted, may greatly impede any restoration of normalisation, perhaps for decades.