Vietnam's production and export activities as well as trade balance may suffer if Japan and South Korea can't settle their differences soon, according to VDSC report.
While the US - China trade war is still be resolved, tensions between Japan and South Korea have accelerated since the latter’s Supreme Court ordered the former’s companies to pay compensation for forced labor during World War II.
Though officials on both sides have met several times, there are no sign of progress, the Viet Dragon Securities Company (VDSC) noted in its latest report.
Samsung and SK Hynix’s production activities will be impacted due to Japan’s restrictions on the exports of specialized products needed to make semiconductors and computer displays.
Japanese exporters now need to apply for licenses, a process can take up to 90 days. Samsung and SK Hynix have one and three months’ stock of these products, respectively.
Japan produces 90 per cent of the world’s supply of two out of three of these specialized products and 70 per cent of the other.
“If Japan and South Korea do not reach a deal soon, Vietnam’s production and export activities and its trade balance may be affected,” said Mr. Hoang Nguyen, an analyst at VDSC.
“Goods related to semiconductors and displays, such as computers, phones, and cameras, accounted for 35 per cent of Vietnam’s total exports in 2018. Phones and parts accounted for 20 per cent of the total. When exports of these goods fall, Vietnam’s trade balance will also be hit.”
Electronic products also impact on manufacturing, which has been the main driver of Vietnam’s economy in recent years. Samsung alone has created more than 160 jobs.
The South Korean giant said it is looking for alternatives to Japanese suppliers and does not plan to reduce chip production.
Russia and China can provide these specialized products, but they are not as good as the Japanese equivalents.
Japan has recently allowed the first shipment of these specialized products to South Korea since restrictions were introduced in July.
VDSC therefore believes Samsung Vietnam’s production activities will be fine during August and September.
Production will peak in the next few months, as Samsung has recently released the Galaxy Note 10.
However, if Japan continues to tighten its specialized product exports to South Korea, Samsung’s production in will be affected in the fourth quarter, as will Vietnam’s economy.