This month Japan put export constraints on three chemicals key to South Korea's tech industry, and to powering our smartphones.

Key points: South Korea ordered Japanese companies to compensate forced labour victims

South Korea ordered Japanese companies to compensate forced labour victims Japan said the export curbs were due to national security concerns

Japan said the export curbs were due to national security concerns If tensions escalate, the cost of smartphones, computers and other electronics could rise

South Korea is heavily reliant on Japan for those chemicals, which are essential in creating semiconductors, memory chips and screen displays.

South Korean-made chips are found in everything from smartphones and fridges to cars and missiles, creating untold ripple effects.

On the surface it's a trade dispute, but it's not all about won and yen.

Deep distrust remains and there are lingering war wounds from Japan's colonisation of South Korea during World War II, especially the use of "comfort women" (a euphemism for sexual enslavement) and forced labour in Japanese munitions factories.

What is now contained to an export dispute threatens to escalate into a trade war — Japan is considering stripping South Korea of its "white list" preferential trading status, which could put curbs on some 850 "sensitive" materials.

South Korean President Moon Jae-in has described the situation as an "unprecedented emergency", but Japan's ambassador Junichi Ihara says the country has national security concerns, following "some cases of inappropriate export".

For now, they're at an impasse, with both countries failing to resolve the dispute at the World Trade Organisation last week.

Experts say the flare-up between South Korea and Japan is a new development in the broader context of the trade war between China and the United States.

Chemical disruption — by the numbers

Japan is the main producer of three chemicals key to South Korea's electronics manufacturing industry. ( ABC News: Jarrod Fankhauser )

The chemicals in question are fluorinated polyimides (used in smartphone displays), photoresists and hydrogen fluoride (both used to make chips).

Japan makes between 70 per cent and 90 per cent of those three chemicals.

It hasn't cut off the flow of those key materials completely, but the new export rules mean those chemicals are subjected to an approval process that could take up to 90 days, effectively creating a bottleneck and putting strain on supply chains.

Two major South Korean tech companies — Samsung and SK Hynix — make 61 per cent of the world's memory chips.

In turn, they supply companies in China and the United States, including Huawei and Apple.

Apple declined to comment on specifics, but it lists both Samsung and SK Hynix among its top 200 suppliers.

The ABC has approached Huawei for comment but the company did not respond by deadline.

Pushing up the price of electronics

South Korea exports the majority of the world's memory chips, found in smartphones and cars. ( Axonite )

While the intricacies of supply chains make it hard to discern just how reliant those companies are on South Korean chips, it's a huge industry.

Last year, South Korea exported $US127 billion ($182 billion) in chips, with China and the US being key markets, said Rajiv Biswas, Asia-Pacific chief economist at global information provider IHS Markit.

"As everything becomes connected, they have chips, and so therefore all of these things would become more vulnerable to any supply chain disruption," he said.

"If supply constraints arise, the price of memory components could significantly increase due to the inability of the other memory suppliers to meet global demand."

This has already played out — in the two weeks after Japan put curbs on the chemical exports on July 1, the cost of some memory chips shot up by 23 per cent.

The US and Taiwan are also producers of chips, but because South Korea supplies more than 60 per cent, there could be a lag as other companies scramble to meet demand.

Mr Biswas said that means "end products" like mobiles, computers and servers "would be impacted, resulting in higher retail prices for Australian consumers of electronics".

He said taking South Korea off the white list would be "a huge escalation of the trade friction" — to the brink of a trade war.

'Pent-up anger' over forced labour during WWII

The fraught issue of South Korean women who say they were subjected to sexual slavery and labour exploitation during World War II has impacted diplomatic relations for decades. ( ABC )

Today's economic decisions are never far from history, according to Lauren Richardson, an expert in South Korean-Japanese relations at the Australian National University.

She said for South Korea, the biggest historical sore point is Japan's colonisation of the peninsula from 1910 to 1945, but animosity stems back to Japanese invasions in the 1500s.

Dr Richardson said South Koreans forced to work in Japan were exploited to the point of malnourishment or death and their remains were often not returned, but Japan says the matter was resolved under a 1965 treaty and in a 2015 agreement on "comfort women".

"There's a lot of pent-up anger," she said.

That unresolved tension bubbled to the surface last year, when South Korea's Supreme Court ruled Japanese companies Mitsubishi and Nippon Steel must pay between 80 million won ($97,000) and 150 million won ($182,000) to individuals subjected to forced labour.

"Those companies that abuse the labourers have subsidiaries in [South] Korea, so the Korean court can freeze the assets," Dr Richardson said.

In January, one South Korean district court did just that, freezing Nippon's local assets and sparking "a major diplomatic problem", she said.

Dr Richardson added that while South Korea and Japan — both important US allies — had put their differences aside in the past to deal with a belligerent North Korea, their strategic visions for dealing with the isolated state had diverged, sending their relations into a downward spiral.

"The diplomatic friction has really permeated the economic realm and the security realm to an extent that we haven't seen in a long time," she said.

What has North Korea got to do with it?

North Korea's Kim Jong-un and South Korea's Moon Jae-in are warming ties between the two countries. ( AP: Korea Summit Press Pool )

Politics expert Stephen Nagy from the International Christian University in Tokyo told the ABC that North Korea figured into Japan's logic on the trade dispute.

"Japan are concerned about how their products are being used in South Korea, and how those products move downstream into the Chinese supply chain, which goes back to North Korea to buttress and strengthen their regime," he said.

Dr Nagy said Japan could be used as a conduit to put pressure not just on South Korea, but on Huawei as well — the Washington Post reported the Chinese telecoms giant was secretly helping North Korea build wireless networks.

"Japan's tactics are in some way a double-punch," he said.

But he added that Japan falling back on claims of international security, and the dual use of technology for nefarious ends, was a "convenient excuse to put a curb on exports".

"This is, in part, deploying the tactics of the Trump administration — they use the rubric of national security to argue for these tactics to put pressure on the Moon administration," Dr Nagy said.

The trade tensions could also backfire for Japan — some South Koreans are boycotting Japanese-made beer and other products.

Mr Biswas said South Korean companies would look to other sources for key chemicals "so that they're not vulnerable to these kind of political actions" — but that's not an easy task given Japan's global dominance.

"We are trying to diversify sources of those chemicals," an SK Hynix spokesperson told the ABC.

Where to from here?

The Japan-South Korea trade dispute adds to already heightened geopolitical risk due to the US-China trade war. ( ABC News: Jarrod Fankhauser )

Moody's Analytics economist Katrina Ell told the ABC it was too early to tell just how widespread the impact would be — and whether your next smartphone might cost you more — because it could take time for costs to filter through to the consumer and the trade dispute may be resolved.

"The main concern for us, with the Japan-South Korea dispute, is that it adds to already heightened geopolitical risk," she said.

She said in light of the China–US trade war, all the global uncertainty could affect economies like Australia and New Zealand.

"We're already seeing in Australia that consumption is weak, the labour market could be stronger, so these additional geopolitical tensions really hurt that already fragile sentiment," she said.

"It's hard to say if we're in a new normal of geopolitical tensions being heightened and people using trade as a weapon, but certainly in the case of the US-China trade dispute, I think it's fair to say that's been the case."

The ABC has approached the ministries of foreign affairs and of economy and trade in South Korea and Japan for comment.