Benefits for Bystanders? Effects of the Japan-South Korea and the US-China Trade Dispute for Japan (2018-2020)

Abstract

The China-US and the Japan-South Korea trade dispute since 2018 and 2019 involve Japan’s three top trading partners. This paper provides a comparative analysis of economic spillovers for Japan from both disputes between 2018 and 2020. The author argues that the China-US dispute entailed positive and negative spillovers for Japan as a bystander. As a participant, Japan faced negative spillovers from the Japan-South Korea dispute. Companies with China or US exposure experienced direct effects from the China-US trade dispute, e.g., declining sales and stock prices. Others benefitted from increasing demands and trade diversion effects. For the Japan-South Korea trade dispute, direct effects included boycotts, export problems, and declining tourist numbers. Indirect effects from both disputes include risk hedging measures by Japanese companies searching for new locations and partnerships, as well as Japan’s government balancing between China and the US, and increasing multilateral economic cooperation. The analysis shows that the concepts of direct and indirect effects need to be modified to apply them to the China-US and Japan-South Korea trade dispute. Direct effects need to include positive spillovers in the context of Japan witnessing the China- US dispute. For indirect effects, not only risk hedging measures by economic actors, but also by political actors need to be included. This study of spillovers for Japan as a participant and bystander in two trade disputes allows general conclusions about potential economic risks of trade disputes for participants and bystanders. The analysis draws on theoretical findings by Baldwin and Kapstein (2020), Kawashima (2019), and others.



Author Information
Franziska Schultz, Rikkyô University, Japan

Paper Information
Conference: ACBPP2021
Stream: International Economics

This paper is part of the ACBPP2021 Conference Proceedings (View)
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