A Japan-South Korea trade war? First, some facts. South Korea is Japan’s third-largest export destination (7.1 percent of all Japanese exports in 2018). Japan is South Korea’s fifth-largest export destination (5.1 percent of all South Korean exports in 2018). Both countries have an interest in coordinating their economic, military and political power to curb China’s growing regional footprint. And yet, the two seem incapable of coordinating anything besides mutual annoyance. Last Thursday, Japan began forcing Japanese companies to seek government approval before exporting fluorinated polyamide, photoresists and hydrogen fluoride etching gas – materials South Korea depends on for the production of semiconductors and smartphone displays. Japan has justified the move based on undefined national security risks. South Korea’s trade minister said earlier today that the two sides were laying the groundwork for a potential Friday meeting to discuss the issue, but Japan’s chief Cabinet secretary told reporters that “The measure is not a subject for consultation and we have no intention of withdrawing it.” That doesn’t sound like a trade spat on the verge of being resolved.
Arming Taiwan. The U.S. State Department approved the possible sale of some $2.2 billion worth of M1A2T Abrams tanks, Stinger missiles and related equipment to Taiwan, according to the Pentagon. U.S. lawmakers now have 30 days to approve the sale, and all indications suggest they will. China disapproves, of course, but it seems as though its displeasure isn’t strong enough to derail recently resumed U.S.-China trade talks. That could change if the U.S. moves forward with the sale of F-16 fighter jets to Taiwan. Talks to that effect progressed last week after disagreements over price and aircraft configuration were resolved, Foreign Policy reported. There is not a whole lot China can do in the short term to prevent the U.S. from selling whatever weapons it wants, but in the long term, these sorts of moves, especially in the context of a worsening and decoupling trade relationship, has the effect of hardening the positions and attitudes of both sides.
The UAE pulls back from Yemen. Saudi Arabia’s closest ally in its long-running war against the Iranian-backed Houthis in Yemen is drawing down its troops in the war-ravaged country. A senior Emirate official said the UAE had discussed its decision extensively with Riyadh and that the move was for both “strategic and tactical reasons.” The troop drawdown will reportedly affect UAE troops deployed near the port city of Hodeidah as well as troops at the Emirati military base in Eritrea, which had been a staging ground for operations in Yemen. Though the official made a point to emphasize the coordination between the UAE and Saudi Arabia, this is hardly the first crack we’ve seen in the Saudi-Emirati alliance, and it underscores the different interests both sides have in Yemen in the long term.
Trouble awaits the next British prime minister. The British economy probably contracted by 0.1 percent in the second quarter, according to a Bloomberg survey of economists. The forecast follows a string of bad purchasing managers’ index data and a British Retail Consortium report that said retail sales declined by 1.6 percent in June from a year earlier on a like-for-like basis. Meanwhile, Boris Johnson, who will likely be the next British prime minister, said Monday night that he opposes any trade deal that would jeopardize the U.K.’s animal welfare and food hygiene standards. (The U.S. is determined to dismantle such barriers to its market access for agricultural goods.) It was going to be hard enough for Johnson to work any Brexit miracles even with a perfectly humming economy and the full support of Britain’s closest ally. It appears as though whoever takes over for Theresa May will inherit neither.
China and New Zealand. We missed a story last week that deserves to be mentioned today. On July 4, New Zealand and China signed a memorandum of arrangement to enhance defense cooperation. The deal was signed during the New Zealand defense minister’s weeklong visit to China last week and includes provisions for high-level exchanges, cooperation on humanitarian issues and potential opportunities for military exercises. New Zealand has made it clear with its increased defense spending and coordinated moves with Australia in the South Pacific that it intends to provide viable alternatives to China, so don’t take this as a sign that New Zealand and China are all of a sudden stalwart allies. New Zealand simply doesn’t have the luxury of turning its back on China, considering the depth and importance of the bilateral economic relationship to New Zealand’s well-being. New Zealand has to try and find some pragmatic basis for dealing with China, and this is one small step in that direction.
- The leader of Wales’ devolved government has said his country’s place in the United Kingdom was not “unconditional” and that he would reassess its status should Scotland vote for independence.
- Japan’s gross domestic product shrunk 0.4 percent in May, according to statistics released by the Japan Center for Economic Research.
- Data from South Korea’s Consulate General in Vladivostok shows that trade between Russia and North Korea tripled year on year during the first quarter of 2019, from $3.7 million in 2018 to $10.7 million.
- Hong Kong Chief Executive Carrie Lam said the extradition bill that sparked more than a month of intense protests is “dead,” though she declined to say whether it would be fully withdrawn.
- Russia has deployed an anti-submarine corvette in the Sea of Azov.
- Italian Finance Minister Giovanni Tria said he was amenable to a sales tax hike next year that has sparked fierce resistance from the leaders of the two governing parties.
- Croatia submitted a formal bid to join the European Exchange Rate Mechanism, which could enable the country to join the eurozone as soon as 2023.