N. Korea face-off threatens economy
Americans may be focused on President Donald Trump’s tweet war with his critics and NFL protesters, but don’t be distracted by the serious threat to global economic stability presented by his confrontation with North Korea.
U.S. Air Force B-1B bombers flew up and down both coasts of the Korean Peninsula on Wednesday, and the USS Ronald Reagan carrier strike group is conducting drills with the Japanese navy nearby. The British Ministry of Defense, meanwhile, is apparently drafting battle plans for a potential conflict.
Add in Trump’s recent comments about a “calm before the storm” and reports that North Korean leader Kim Jong Un is readying another longrange missile test, and it become clear this is not routine saberrattling. These are all indicators of an increased risk of U.S. military action.
Wall Street recognizes the signs, which is why defense
stocks are rising with every angry tweet.
We last saw this kind of escalation before the invasion of Iraq. In August 2002, the Associated Press sent me to visit Persian Gulf states to report on preparations for an invasion. I arrived doubting that the Bush administration would do anything so foolish, but left weeks later convinced that war with Iraq was inevitable.
President Saddam Hussein intentionally promoted the idea that he possessed weapons of mass destruction because he thought that would deter an invasion. He had never gotten involved with terrorists and had no capacity to threaten neighbors, so he bet that the U.S. wouldn’t risk taking huge casualties if the Pentagon believed he had WMD.
The U.S. called his bluff with devastating consequences.
The lesson was not lost on Kim. The only way to deter a U.S. invasion is to demonstrate that he can inflict horrific casualties on South Korea, Japan and the United States. That’s why he will never stop testing missiles and nuclear weapons. He is convinced they are the only thing that will protect his regime. For him, this is life or death.
North Korea will not threaten anyone with anything more than words, though. Kim is never going to draw first blood, but he will walk right up to that line in order to rally his people behind him.
That leaves Trump with a choice between ignoring and isolating North Korea, and accepting that he has nuclear weapons, or taking pre-emptive military action, which will have profound consequences for South Korea, Japan and China. So far, he’s signaling that he plans military action.
The risk to the global economy is profound. Seoul is only 35 miles from 15,000 North Korean artillery pieces and rocket launchers that are dug into the side of granite mountains. All of Japan is well within range of hundreds of North Korean missiles mounted with conventional warheads. And China could see a million North Koreans flood across its southern border to avoid U.S. missiles.
The conflict would reverberate throughout the global economy, potentially triggering Russian and Chinese embargoes against the United States as well as a sudden decrease in Asian economic activity. The shock to Asian manufacturing and consumption would break millions of fragile supply chains, slowing factories around the world.
Oxford Economics predicts the physical disruption would be long-lasting, even if the conflict were resolved quickly. Capital Economics forecasts a huge spike in U.S. debt and lasting damage to the U.S. economy.
The problem with any conflict is the old soldier’s saying that “no plan survives first contact with the enemy.” What may be intended as a limited intervention can spiral out of control, particularly when there are two personalities whose reputations are built on never backing down.
When I was first told of President George W. Bush’s plan to invade Iraq, I knew the Middle East well and understood the risks. Like Saddam, I never thought he’d act so foolishly. Yet he did, proving how a U.S. president can make huge mistakes.
Which is why I fear Trump’s brinkmanship with North Korea: Because as bad an idea as an attack is, that doesn’t mean he won’t do it. More disturbingly, he appears determined to do it, and he will order his administration to find a way to convince itself that such an attack is required.
There is a reason why past presidents ignored North Korea: It keeps the peace. Kim’s regime is certainly reprehensible, but no one lives forever, and waiting Kim out is almost certainly the best option.