North Korea: Can trade trump missiles?

December 11, 2017

Renewed sabre-rattling between old foes North Korea and the United States has been growing louder by the day. We analyse what it means for Australia and the rest of the region.

North Korea & American flagsPolicy from both North Korea and the US remains unclear, fuelling fears of conflict.

Posturing by the North Korean leadership is nothing new, but there are a couple of significant differences this time around.

Firstly, North Korea has substantially ramped up both ballistic missile and nuclear tests in the past few years. While Kim Jong-un’s father and grandfather averaged testing about one to 1.5 missiles a year, the young leader has tested about 80 missiles since he came to power in 2014, an average of around 15 a year.

Reuters reports that Pyongyang test fired its most advanced missile in September putting the U.S. mainland within range.

Secondly, according to Robert Gallucci – former ambassador and chief US negotiator during the North Korean nuclear crisis of 1994 – is the ambiguity of US policy toward the rogue state.

Gallucci told members of the US-Korea Institute that policy was unclear, for both countries.

“I don’t know what the ‘North Korean grand strategy’ is; but, for the first time in a very long time, I would say the same about US policy with respect to North Korea,” Gallucci says “I think it is arguably true that in both [the US and North Korea], the leadership has demonstrated a certain impulsive quality, not judicious, not cautious.”

Economic implications for Australia

Australia has long been in lock-step with the US policy of containment and imposition of sanctions via the United Nations Security Council, and Parliament recently received a letter from the North Koreans warning of “disaster” if it followed the US’s strategy of economic and military pressure.

If this disaster scenario were to spill into outright conflict, the human and economic costs would be considerable. According to a report by 38 North, a US-Korea think tank, a hypothetical nuclear attack by the North Koreans on South Korea and Japan could produce more than 2 million fatalities and 7.7 million injuries.

Given that our top four two-way trading partners – China, the US, Japan and South Korea – would be directly involved, the financial fallout for Australia would be particularly significant.

South Korean two-way trade with Australia accounts for more than $32 billion, with the other three countries totalling $280 billion. 

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While the Korean War of 1950–53 resulted in an 80 per cent reduction of South Korea’s gross domestic product, the cost of a contemporary conflict would be much higher, says a report by Capital Economics.

“After the most recent wars in Iraq and Afghanistan, the US government spent around $170 billion on reconstruction. South Korea’s economy is around 30 times bigger than these two countries’,” say the report’s authors, Gareth Leather and Krystal Tan. “The upshot is that a prolonged war in Korea could significantly push up federal debt in the US, which at 75 per cent of GDP, is already uncomfortably high.”

In addition to the cost of war itself there’s the cost of reconstruction and rehabilitation of industries upon which much of the world relies.

“In particular, South Korea is the biggest producer of liquid crystal displays in the world (40 per cent of the global total) and the second biggest of semiconductors (17 per cent market share),” says Capital Economics. “It is also a key automotive manufacturer and home to the world’s three biggest shipbuilders.”

Inevitable or preventable?

According to senior New York Times journalist Nicholas Kristof, who has been covering North Korea since the 1980s, a recent trip to the Hermit Kingdom generated serious alarm.

“I leave North Korea with the same sense of foreboding that I felt after leaving Saddam’s Iraq in 2002,” he wrote. “War is preventable, but I’m not sure it will be prevented.”

On the other hand, Associate Professor Roald Maliangkaij – Director of the Korea Institute and long-time Korea observer – says full-scale conflict is unlikely.

“Since the mid-90s, you see these cycles over and over again,” he says. “In the short run, I think we’ll go back to a stalemate much as we did after similar rhetoric between the US and North Korea in 1993.”

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