Japan removed South Korea from its list of trusted export destinations on Friday, further escalating the tension between the two countries and opening up the possibility for long-term consequences for the global production of tech goods.
Japanese Prime Minister Shinzo Abe's cabinet voted to strike South Korea from its so-called "white list" of countries, which allows countries on the list to go though less stringent trade checks and regulations.
The change is set to go into effect on August 28.
Talks between the two countries to resolve the trade dispute broke down on Thursday at a forum in Bangok, with South Korean foreign ministers warning that there would be grave consequences if Japan went ahead with removing it from the "white list".
Japan first imposed trade restrictions against South Korea in July, requiring Japanese companies to gain government approval in order to export key display and semiconductor materials to South Korea.
The latest trade restriction of removing South Korea from its "white list" is the first time any country has been removed from the list, with the change set to create ramifications that extend beyond the production of South Korea's technology products, though it remains to be seen how much of an impact it will create on South Korea's economy.
The latest moves have prompted tech giants such as Samsung and SK Hynix to come up with contingency plans as they search for alternative trade partners from other countries for the materials they need. It's a critical time for the two memory chip makers as the global decline in demand for memory chips has seen the profits for these companie shrivel.
While none of these moves by Japan are a direct trade ban on these companies, the scarcity of memory chip materials during the interim could increase prices.
The diplomatic dispute between the two countries began late last year when South Korea's highest court ordered Japan's Mitsubishi to provide compensation for its use of South Korean slave labourers during World War Two. Japan has disputed the court decision, saying it already made full reparations in an earlier agreement between the countries.
Samsung boss JY Lee is reportedly planning talks with Japanese business leaders to discuss how to go forward with Japan's export restrictions.
Samsung leader JY Lee has told the company's semiconductor and display businesses to make contingency plans in the event that the trade dispute between South Korea and Japan continues to drag on.
The Japanese government is also seeking consultation on whether South Korea should be removed from its 'white country list'.
Among the affected industries are the telecommunications, semiconductor manufacturing, and mobile phone manufacturing sectors.
Citing consumer safety concerns and uncertainty over Google's Android support, SoftBank and KDDI have delayed the sale of new handsets from the Chinese vendor, specifically, the Huawei P30 lite, which had been slated to hit the local market on May 24.