Impact of tighter controls on Japanese chemical exports to Korea

• Published in: Economic modelling 2021-01, Vol.94, p.631-648
• Main Author: Hosoe, Nobuhiro
• Format: Article
• Language: English
• Subjects: Computable general equilibrium analysis; Economic integration; Economics of defense; Export control; Trade facilitation
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2020.02.006

The Japanese Ministry of Economy, Trade and Industry announced recently that they will terminate preferential treatment in the licensing of specific chemical products for export to South Korea. This announcement evoked concern that the impact on Korean semiconductor and electronics industries, which rely heavily on imports from Japan, might cause a serious supply shortage in the global semiconductor market. To assess the economic impact of tighter export controls, this study simulates: (a) imposition of an export tax on chemical products; and (b) a productivity decline in the electronics sector in Korea, using a world trade computable general equilibrium model. The results of these simulations indicate that such a productivity decline would cause only slight harm to the Japanese and world economies, aside from the electronics sector in Korea, and that an export tax would significantly distort trade patterns and undermine the welfare of Japan and Korea in a similar magnitude. However, welfare loss normalized for economy size would be far smaller in Japan than in Korea. •Tighter controls on Japan’s chemical exports to Korea are simulated.•Export tax and TFP decline scenarios are considered in a world trade model.•A TFP decline would harm Korea and Japan in welfare little.•An export tax would impact Korea more severely than Japan.•Korean electronics exports would be curbed but covered by other major suppliers.