by Patrick Fearon-Hernandez, CFA

Since early July, the financial press has been reporting on a continued trade spat between Japan and South Korea.  The reports have focused on a series of tit-for-tat trade restrictions the countries have imposed on each other, which are ostensibly tied to South Korean anger over Japan’s behavior in the runup to World War II.  The reports rightly point to the conflict as an example of how trade policy has been weaponized by populist, nationalist leaders around the world, but we think it reflects much more than that.  For one thing, the dispute is only the latest chapter in a long history of conflict between the Koreans and the Japanese – a centuries-old story of mutual fear and loathing, colonization and rebellion, and even the assassination of a powerful, beautiful queen.  Just as important, the conflict is an example of how the U.S. retreat from its traditional hegemonic leadership role has unleashed dangerous conflicts that had previously been frozen.

In Part I of this report, we’ll show how today’s dispute fits into the history of Japanese-Korean relations over the last several centuries and demonstrate that the enmity between these two ancient peoples is probably much worse than most U.S. observers realize.  In Part II, we’ll discuss how the changing U.S. approach to international relations has allowed the dispute to grow.  We’ll also discuss the likely ramifications for investors.

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