A tale of Two Outcomes. Frequent temperature swings are affecting the U. S.-North Korean relations.
U.S.-North Korean relations have gone from cold to hot to cold again. How does the current temperature affect business and the geopolitical landscape in the region?
Theworld held its breath in July 2017 as North Korea in a display of brazen defiance fired its first-ever intercontinental ballistic missile on U.S. Independence Day. Outcry and condemnation from the international community, including North Korea’s strongest ally China, didn’t stop North Korean leader Kim Jongun from firing another intercontinental ballistic missile just three weeks later, prompting South Korea’s President Moon Jae-in to convene an emergency security meeting in the middle of the night, and Japanese Prime Minister Shinzo Abe to note that “The threat to Japan’s security [had] become grave and real”.
The message from The White House was a little blunter. Speaking from his golf course in New Jersey, US President Donald Trump told reporters that any more threats from North Korea would be met with the now-famous “fire and fury like the world has never seen”.
Despite the rhetoric, North Korea went on to conduct no less than seven missile tests before the year was over, including the Hwasong-15, an intercontinental ballistic missile believed to be capable of hitting the entire continental U.S., two intermediaterange ballistic missiles over Japan, and a nuclear test in the form of an advanced hydrogen bomb.
In early 2018, however, there was a shift in North Korean foreign policy. A South Korean diplomat returning from an official visit to Pyongyang said Kim Jongun was willing to discuss North Korea’s nuclear programme with the U.S. and just three months later the two leaders finally met at a summit in Singapore. Mixed reactions The summit was great news for business. In the lead-up to the event, stocks across major Asian markets rallied, and on the day of the actual summit, key markets closed higher. Japan’s Nikkei 225 rose 0.33 percent to close at 22,878.35, slightly lower than the season high of 23,011.57 it reached that same morning. Food, retail and land transports indexes were among the highest performing, rising more than one percent. The Shanghai composite gained 0.91 percent to finish at 3,080.55, while the smaller Shenzhen composite gained more than 1 percent. However, other markets were less buoyant. South Korea’s Kospi slipped 0.05 percent to close at 2,468.83, and Singapore’s Straits Times Index slipping 0.13 percent.
Given the immediate result of the summit – a signed joint agreement pledging nuclear disarmament by North Korea in exchange for U.S. security guarantees – a more pronounced market reaction might have been expected. However, critics were not late to sound the alarm. “Vague and with little substance” was the overarching theme of the criticism, with many taking the stance that President Trump had made too many concessions to the North Korean regime, including the decision to halt joint U.S.-South Korean military exercises, which have been a major contention point for the North for years.
“Unfortunately, we do not know if Kim Jong-un has made a strategic decision to denuclearise and it is unclear if further negotiations will lead to the end goal of denuclearisation,” Anthony Ruggiero, a senior fellow at the conservative Foundation for Defense of Democracies think tank, told Reuters. “This looks like a restatement of where we left negotiations more than 10 years ago and not a major step forward.” Slow, if any, progress Since the summit, North Korea has indeed halted its nuclear and missile tests and claims to have dismantled a nuclear testing site. The regime even returned remains that are believed to be of U.S. soldiers killed in the Korean War.
However, a UN report commissioned by the UN Security Council concluded that North Korea is continuing to work on its nuclear programme, mirroring claims by U.S. officials that spy satellites had spotted continued activity at a site that has produced ballistic missiles. The UN report also said that there has been a massive increase in ship-to-ship oil product transfers and that North Korea has been trying to sell weapons abroad, both violations of UN sanctions.
As recent as August, President Trump, whose government is in the mid of an intense trade war with China, blamed the Chinese government, which yields significant influence over the North Korean government for stalling progress. An official visit by Secretary of State Mike Pompeo was cancelled due to lack of progress in dismantling the nuclear programme.
Now what? The slowing down or lack of progress begs the question: Now what? With not only North Korea’s nuclear capabilities on the line but also the relationship between China and the U.S. and the geopolitical balance in the region, some feel that a Pandora’s box has been opened and that Asia’s security landscape will change, disarmament or no disarmament. Pyongyang has previously said that it will only dismantle if the U.S. removes its 28,500 troops stationed in South Korea, a scenario that will significantly change the geopolitical balance in the region as Asian allies rely on U.S.’s defence commitments in the face of an increasingly assertive China.
President Trump himself at a press conference after the summit indicated a desire to bring the troops home, a move that media branded “a huge win for Pyongyang and Beijing” and prompted concerned remarks from South Korea and Japan. “At this point, we need to know President Trump’s exact meaning or intentions,” said the Blue House, South Korea’s equivalent of the White House. Meanwhile, Japanese Defence Minister Itsunori Onodera said the U.S.South Korea drills were “vital” to East Asia, adding that his country wished to “seek an understanding of this between Japan, the U.S. and South Korea.”
Furthermore, the timing of disarmament could pose a threat to stability in the region. Staged disarmament combined with the removal of U.S. troops in South Korea could prompt the closure of military bases in Japan as well, leaving both countries vulnerable to North Korean short-range missiles. “Any agreement that removes the North Korean nuclear threat from the United States, but leaves Japan and South Korea vulnerable to a North Korean attack would be cause for concern,” Troy Stangarone, senior director at Korea Economic Institute, a Washington-based think tank told CNBC.
According to an analysis by CNBC, if no progress is made towards disarmament, it may indicate to U.S. and North Korean officials that diplomacy as a strategy has failed, leaving only military solutions on the table. “Failure to reach any deal would almost certainly return the military option to the fore as the U.S. administration’s preferred means of removing the North Korean threat,” said a note from the International Institute for Strategic Studies.
From a business perspective, Korean and Japanese markets are most sensitive to the North Korean risk and would also benefit the most from a denuclearisation of the Korean Peninsula. According to an analysis by Oanda, a leading provider of currency data, the Korean won is very sensitive to conflict on the peninsula, and disarmament is likely to boost the won significantly. The data provider also noted that although the Japanese yen has traditionally performed well during geopolitical strife, permanent disarmament will likely result in an increase in value. An end to maximum pressure
Even if disarmament does not happen, some believe that a return to President Trump’s campaign of “maximum pressure” is impossible. According to Reuters, North Korean officials have toured China to discuss economic development, speculators are snapping up properties along the Chinese-North Korean border, and South Korea is studying ways in which to boost engagement with its northern neighbour.
“Trump’s campaign is over,” Kim Hyun Wook, a professor at the Korea National Diplomatic Academy told Reuters. “The diplomatic openings with North Korea have already been taking a toll on the maximum pressure campaign.”
A similar sentiment was expressed by Joseph Yun, the United States’ former top negotiator with North Korea. “Practically it is not possible to continue maximum pressure when you’re talking with your adversary. I don’t think you can have serious engagement as well as maximum pressure.”
PHOTO: WIKIPEDIA/DAN SCAVINO JR