A long-running history war between Japan and South Korea has burst the boundaries of diplomacy, leaving the world’s third- and 11th-largest economies teetering on the brink of a real, live trade war.

The stakes are stratospheric. The new battle brewing between Washington’s two democratic allies in Northeast Asia threatens seismic consequences not just for the world’s electronics supply chain, but also for regional geopolitics.

Worryingly, both sides look unwilling to de-escalate, while customary mediator Washington stands on the sidelines.

Lighting the fuse

The crisis blew up when Tokyo announced this month that South Korean importers of key Japanese semiconductor and display materials are now required to submit to new, and potentially onerous, 90-day government approval processes.

The decision was taken, ostensibly, on national security grounds – a move that may have been plucked from US President Donald Trump’s playbook. At face value, it looks highly dubious. There is no evidence that Seoul has dispatched the materials to North Korea.

But Japanese Prime Minister Shinzo Abe has taken a broader stance: He considers Seoul, overall, an untrustworthy counterparty. Two actions underscore his contention.

Last year, Seoul’s Moon Jae-in administration unilaterally ceased to abide by the terms of a 2015 agreement signed between Tokyo and a previous Seoul administration, via which an apology and compensation was delivered to elderly Korean “comfort women.”

Then, in January, Korea’s Supreme Court ordered the seizure of Japanese firms’ assets to compensate Korean workers forced to labor in wartime Japanese factories. A fuming Tokyo insisted the action breached the terms of a 1965 treaty that it claims dealt with the issue, and in which hundreds of millions of dollars of compensation was paid.

Tokyo demanded third-party arbitration (a clause in the 1965 treaty). Seoul shot back that it cannot overturn a court decision. It refused.

Although Tokyo warned it would not stand idle, and has likely been mulling its move for months, Seoul – which openly dubs Abe’s actions “retaliation” – has been caught wildly off-guard. Panicky Koreans anticipate essential supplies for their flagship electronics industry being not just delayed, but halted altogether.

Dire though they are, current animosities extend well beyond the current administrations.

Close but far

A startling paradox is that individual Japanese and Koreans usually get along perfectly amicably. Their social cultures are similar, and they consume each other’s cuisines and pop cultures with gusto; indeed, Japan is a critical national market for “Korean Wave” acts and shows.

However, Japan has a harsh history of aggression on the peninsula.

Japan devastated Korea in an invasion in the 16th century, and colonized her in the 20th. Beyond the unfairness and exploitation implicit in colonialism, the brutalities of Japanese rule, such as the recruitment of “comfort women” for Japanese military brothels, the recruitment of forced labor and suppression of Korean culture, are well known. Korean-Japanese have also suffered prejudice.

Still, in the years since 1945, it is difficult to point to another other ex-colonial power that has offered more remuneration or apologies to an ex-colonial subject.

In the US-brokered 1965 treaty, diplomatic relations were restored, with Tokyo paying Seoul US$800 million in grants and soft loans – a major portion of Japan’s forex reserves at the time. Seoul, instead of passing along compensation to individual colonial victims, invested the cash in economic development. Regardless, for decades relations were stable.

Only after Korea won democracy in 1987 did pent-up animosities, buried under authoritarian regimes, bubble to the surface. By then, Korea’s economy was self-sufficient enough to wean itself off Japanese capital, partnerships and consultants.

In the 1990s, anti-Japanese-ism replaced anti-communism as the most powerful emotive force in the Korean body politic. Although the 1950-53 Korean War was bloodier and more destructive, the 1910-1945 colonial period is widely painted as the darkest age in Korean history.

In Japan, varied viewpoints of the Pacific War are available (albeit not in textbooks, which whitewash Japanese atrocities) and there is a spectrum of opinion on Japan’s colonial and wartime actions.

But in South Korea no divergence from the narrative is permitted. Only colonialism’s worst aspects are taught in schools and displayed in museums. Popular culture fictionalizes and mythologizes the independence struggle. News media practice self-censorship. Scholars who offer nuance are shouted down – including, in a recent case, by their own undergraduates. Others face court action, fines, redactions and even job loss.

Scores of apologies have been delivered by Japanese emperors, presidents and cabinet secretaries –mostly in recent years. But relations continue to deteriorate as Koreans find constant reasons to dispute apologies, usually on grounds of “insincerity,” or because of related actions – such as revisionist textbook alterations, or politicians’ visits to Tokyo’s Yasukuni, where war criminals are enshrined.

Even so, Tokyo endured Korean prodding for nearly three decades without significantly reacting. Why are things so bad now?

Customarily good relations between the two militaries degraded in recent months after Seoul demanded that a Japanese warship invited to a Korean naval review strike its “rising sun” ensign – a demand never made previously – and a Korean destroyer reportedly tracked Japanese aircraft with its target radar. Seoul’s de facto annulment of the 1965 and 2015 agreements looks like the final straw.

Abe – who himself holds revisionist historical views , and whose grandfather was a corrupt and brutal war profiteer in Manchukuo – appears to have concluded that neither apology nor remuneration works. Hence – with the Osaka Group of Twenty summit safely concluded – he ditched carrot and took up stick.

Moon’s domestic battle: Game on

Tokyo’s aggressive new approach detonated like a bombshell in a Seoul caught wildly off balance by what it dubs Japanese “retaliation.” While Tokyo’s measures have not yet taken effect, the situation is front page, top-of-bulletin news, day in, day out.

Domestically, the situation offers Moon potential pros and cons.

On the plus side, the right-wing opposition has had no choice but to fall in behind him as he takes on the despised Abe. An inflamed public has kick-started Japanese product boycotts. Korean tourist cancellations to Japan are reportedly spiraling.

And if Moon can paint himself as a victim, he will have support: Koreans, in recent years, have evidenced powerful sympathies for victims of political injustices.

On the downside, to give in would be a humiliation. Yet Moon may come under behind-the-scenes pressure from businesses to step back: They look unlikely to be able to diversify necessary components of their leading export items for months, if not years.

Abe’s strategy appears well crafted. Its focus on displays and chips impacts Korea’s biggest sector, and it can be easily calibrated. If relations improve, approval processes can be eased. If relations deteriorate, they can be tightened or halted.

While Japanese companies are also likely to suffer collateral damage – some require Korean components, and they could lose valuable Korean customers – such damage has almost certainly been factored into Tokyo’s calculations.

This leaves Moon – already under pressure amid a stuttering economy that is just one third as large as Japan’s – limited wriggle room. Overseas, too, he is in a quandary.

Moon’s global battle: Any allies?

Seoul has appealed to the World Trade Organization and plans to raise the case at the organization’s general assembly at the end of the month. This may prove a non-starter.

For one thing, Tokyo can argue it has simply changed processes for exports to Korea, not halted them. For another, the WTO ruled in April, for the first time, that national security is grounds for exemption from global trade rules. These are the grounds Abe has invoked.

Globally, South Korea has one ally: the United States. Senior Seoul officials have scurried Stateside for support, but have returned empty handed. Washington – despite dispatching its main East Asia envoy to the region on strategic business – has declined to mediate.

Speaking on condition of anonymity, a senior retired US diplomat with experience of both countries told Asia Times, that “Korea has lost the US” on this issue. The damage to the long-enduring 1965 treaty may infuriate Washington, which has consistently urged Seoul and Tokyo to bury antagonisms and cooperate as US allies.

The ex-diplomat also pointed to a double standard: Seoul is taking Japan to the WTO, but did not do so to China when it sanctioned Korea over its displeasure that a US missile defense system, THAAD, was deployed in-country.

Korea’s PR muscle

Where Korea has a thunderous voice is in the court of international public opinion.

Abe’s move, if followed through, will impact global supplies of electronic products – a message Moon can leverage. Moreover, he has an established playbook at hand. In recent years, in the post-colonial world, Seoul and Korean civic groups have been far more effective at communicating their national position than their bumbling Japanese counterparts.

“Comfort women” statues have been raised globally by civic groups. The South Korean narrative  – that there were 200,000 of them; that they were largely Korean; and that they were “sex slaves” kidnapped by Japanese troops – has become the de facto global narrative, although historians may dispute each point.

While the sea between the countries is dubbed “Sea of Japan,” Seoul insists that the preferred Korean term, “East Sea,” be added to atlases worldwide. Even though most languages, including Chinese, Danish, Dutch, English, French, German and Russian call it “Sea of Japan,” this persistent demand has gained some traction in international fora. Tokyo is on the back foot.

Tokyo has customarily been reactive rather than proactive in these PR clashes. Clumsy demands to revise Western history textbooks, or demolish comfort women statues have often backfired.

Moreover, many Japanese who do return fire are hard rightists. Their revisionist, unsympathetic – and sometimes inane – opinions on such issues as the Nanjing Massacre and comfort women win little support abroad, and may reinforce Korea’s position.

What next?

For an alarmed South Korea, clarity is desperately needed – and clarity is expected over the next few weeks.

First, it is unclear whether the Japanese government will, indeed, restrict exports to Korea when Korean firms apply for products. The export process, instead of being halted, may simply be extended. This would create bureaucratic costs, but would not be a game changer.

It is not known if Korea’s Samsung and Hynix – which, combined, supply 70% of the world’s memory chips – have yet applied, but breath is likely to be held when the first 90-day process is initiated.

Second, it is unclear whether Abe’s move is a political play ahead of Sunday’s Upper House elections. This seems unlikely. It looks more like a long-term strategy in which Abe, infuriated by Moon and seeking a more robust military role, is adding South Korea to the list of threats Japan faces from China and North Korea. However, if his move was timed to energize right-wingers, pre-election, Tokyo’s stance could ameliorate next week.

Thirdly, however, Japan has already prepared further escalation. Tokyo has signaled that, in August, Korea could be struck from a “white list” of countries that receive privileged access to Japanese exports. If that happens, other critical Korean sectors – such as autos – will be imperiled.

Worryingly, no exit ramp is apparent.

The leftist Moon administration prioritizes continual historical redress; the rightist Abe administration seeks a future-oriented relationship. Neither side looks likely to back down. Although Moon has talked of a diplomatic solution, he is also mulling retaliation, while Tokyo is primed to upgrade hostilities next month.

Absent an unexpected development or US intervention, deterioration looks likely.

 From ripple to tsunami

If a trade war does break out between the Asian economic giants, it will have incalculable effects on fiendishly tangled electronics supply chains worldwide. That would further pressure a global economy already reeling from the Beijing-Washington trade war.

Impacts could extend beyond economics. If the US intervenes, and follows its present inclination to side with Japan, a slighted Korea may shift into China’s orbit.

A related but underreported issue overhanging the Seoul-Washington alliance is an endlessly delayed but inevitable shift of operational wartime control of South Korea troops from US to domestic control. It is supremely unclear how that process – which Seoul considers an issue of sovereignty – will work. Given that some combined command format is essential, and given US reluctance to place troops under foreign generalship, downgraded GI numbers in Korea are possible.

Whereas Beijing is both Seoul’s and Tokyo’s largest trade partner, Tokyo has proven willing to stand up to Beijing on both diplomatic and security fronts. Seoul has not. So could Seoul lean toward Beijing, changing security dynamics in Northeast Asia –  just as Turkey’s Russia-ward shift in southern Europe is undermining NATO? It is possible.

One wild card is North Korea. If Pyongyang-Washington rapprochement accelerates and presents Trump with a much-needed diplomatic win, the Seoul relationship may suddenly become valuable. Then, Washington might offer Seoul a more generous hearing than Tokyo.

That is Japan’s nightmare scenario. Tokyo, perennially quavering about “Japan passing” and absent from regional security discussions, would then be left isolated and humiliated by its only real ally – an ally which is already bashing it in bilateral trade discussions.

Viewed through these prisms, the ongoing ripples between Northeast Asia’s “close-but-far” democratic neighbors and US allies could become tsunamis.