Trade wars and recession

How to prosper through the crisis

They’re neighbours, trading partners, and military collaborators co-existing in a sea of danger. Why then are Japan and South Korea at each other’s throats when each has so much to lose? Also, what does it mean for Australian business as a global recession looms ever larger?

The western world looks on in alarm at the escalating trade hostilities between the United States and China. What now of the stand-off between its two smaller but significant neighbours in the Sea of Japan?

Recent media has focused on Tokyo’s decision to impose licenses on Japanese firms exporting critical materials to South Korea. The move follows a recent Korean court ruling. The decision empowered its citizens to claim compensation from Japanese firms for mistreatment during Japan’s sometimes brutal 35-year occupation of the Korean Peninsula. The occupation ended in 1945.

The Japanese restrictions apply to firms supplying three kinds of chemicals crucial to Korea’s smartphone and electronic device displays and semiconductor manufacturing. Japan supplies an estimated 70 to 90 per cent of these chemicals globally. However, with more than 60 per cent of the market in finished products using these materials, any contraction of the South Korean market will prove painful to Japan.

The crackdown requires Japanese exporters to submit to a licensing arrangement which could now take up to three months to process. The time lag could spell disaster for South Korea’s lean, just-in-time manufacturing protocols.

The other side of the Japanese coin

On the other side of the coin, Korea could be forced to seek alternative suppliers, a fact of which China, a significant trading partner to both countries, is only too aware. Other potential suppliers are also poised to fill the gap.

The fallout would also have consequences for Japan. Apart from potentially punishing its exporters—in a country notoriously short of natural and mineral resources—Tokyo must be wary of isolating its sometime ally any further.

Japan has also removed South Korea from its ‘whitelist’ of trusted partners on security grounds. It has implied a shadow hangs over the integrity of South Korea and its potentially illegal sales of military-capable parts and equipment to its northern neighbour.

If two bouts of trade turmoil in east Asia weren’t enough, the imminent arrival of a severe to catastrophic global recession should be enough to frighten the most established Australian businesses to confront the challenges now. Planning for a rocky road is not easy but the lack to plan altogether is entirely detrimental to any business.

Imminent global recession

Writing for MYOB, Mark Phillips, former editor of In the Black risk management magazine, cites a platform of sources pointing to a recession. The first indicator is the ANZ bank’s Australian Job Advertisement Series, down six per cent in the March 2019 quarter compared to the previous year, and the lowest in five years.

He also lists the yield curve inversion, where a higher interest rate on short-term bonds compared to long-term bonds foretells a U.S. recession. Reports and forecasts by respected global voices such as the International Monetary Fund, Standards & Poor’s, and Deloitte Access Economics all point to a downturn.1

With all this gloom, what hope is there for Australian businesses? Vulnerable to volatile long-distance pressures on top of domestic consumer stress, what can they do in the short to medium term?

The future isn’t as bleak as the nay-sayers would have us believe. Presenting at an Asialink Business and Global Victoria briefing in Melbourne on August 29, a range of speakers painted a positive picture for Australian exporters. Among them were Scott Ni, Senior Director, Strategy and Operations, Alibaba Group (Australia and New Zealand), Leigh Howard, Victoria’s Deputy Trade Commissioner to Southeast Asia, and Chris Morley, Senior Adviser, Austrade.

Australian businesses’ advantage

The message was clear: Australian companies have a long and strong advantage in the region. Our reputation for quality, not only in natural resources, fresh and processed foods agricultural products, manufactured goods, information technology, and services commands a premium in shelf space and price.

Global Victoria has 10 representative offices in Asia out of a total of 22 worldwide. It works closely with Austrade’s global presence, with whom Strategy Hubb also has a growing relationship, especially in Asia. Businesses facing a recession on their own, often face overwhelming stress. It’s one thing to know that recessions offer smart organisations as many opportunities as challenges; quite another to implement the wisdom.

Strategy Hubb has a wealth of experience to draw from when advising start-ups / scale-ups and corporates on survival and prosperity tactics. Through good and tough times, we assist establishments to become more robust, more efficient and more valuable. If you’d like a stronger grasp of the way the coming world recession will roll out, and how to re-strategise to ride out the crisis, talk to Strategy Hubb today.

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