Analysis of the Impact of the US-China Trade Dispute on the Interdependence Between Korea and Japan

Purpose: This study examined the changes and structural characteristics of the inter-Korean industrial dependence relationship over a 14-year period, from 2010 to 2023. Specifically, it compared the period before and after the intensification of the US-China trade dispute in 2018 to examine the impact of the US-China conflict on the inter-Korean dependence structure. Research design, data, and methodology: This As previously mentioned, this study analyzes the impact of the US-China trade dispute on industrial dependence between Korea and Japan, distinguishing between the pre- and post-war periods. It estimates backward linkage effects, reflecting changes in production technology, for 12 manufacturing-focused industries in Korea and Japan, examining interdependence and the resulting production spillover effects. Backward linkage effects between countries are calculated based on input coefficients and the Leontief inverse matrix. The backward linkage effect between two countries is defined as the influence of a country’s industrial production on the other country’s industrial production, or as an indicator of the degree of dependence on the other country. The higher the index for the other country, the higher the relative dependence is interpreted. The statistical data used are the Asian Development Bank’s (ADB) Multi-Regional Input-Output Tables (MRIO), covering the period from 2010 to 2023. Results: Since 2018, there has been a significant shift in the inter-Korean industrial dependence between the two countries. From 2010 to 2017, Korea’s dependence on Japan increased, while Japan’s dependence on Korea declined. However, since 2018, this interdependence has been cyclical, rising and falling, and by 2023, it has been showing a significant deepening trend. Of course, the trade friction between Korea and Japan in 2019 and the COVID-19 pandemic in 2020 cannot be ruled out. However, the fact that the interdependence between Korea and Japan significantly weakened in 2018 and has deepened again since bottoming out in 2022 suggests that the prolonged US-China trade dispute is having some effect. Furthermore, the strengthening of the South Korean and Japanese governments’ alliance with the US and changes in their policies toward China are also playing a role. Implications: The protracted US-China trade dispute has presented a dual dilemma for both South Korea and Japan: strengthening the alliance with the US and improving trade relations with China. The weakening interdependence between South Korea and Japan since 2018 demonstrates this. The US, China, and Japan are crucial economic partners for South Korea and essential collaborators in stabilizing supply chains. Therefore, South Korea must maintain its close interdependence with both China and Japan, while developing strategic policies that counter US protectionism.