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The North Korean Nuclear Issue and the “Business Logic” in the Financial Market
2019.02.01  Friday
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Seong-Hyon Lee
The North Korean Nuclear Issue and the “Business Logic” in the Financial Market

 

No. 2019-4 (February 1, 2019)

Dr. Lee Seong-hyon

Director, Center for Chinese Studies, the Sejong Institute

sunnybbsfs@gmail.com

 

 

Through a social media, a South Korean friend of mine working in China in the financial sector inquired me about how the second DPRK-U.S. summit and the U.S.-China trade war, respectively, will unfold and what are the likely outcomes. He added that the financial market was acting ‘as if both the U.S.-China trade war and the DPRK-U.S. negotiation on denuclearization are already resolved.’

 

The trade war between the world’s two largest economies will undergo a cycle of ‘compromise and aggravation’, while the overall Sino-U.S. relations will take an overall ‘downward slope,’ I said.

 

In the case of the second DPRK-U.S. summit, the ‘lesson learned’ from the criticisms spurred by the Singapore summit last year will goad the two parties to yield a ‘modest but concrete outcome.’ President Trump will declare the summit as a “success” for domestic politics, however, Washington elites and the U.S. think tank community will criticize the summit as ‘still insufficient.’

 

After articulating my predictions, I emphasized they were entirely ‘my personal views.’ I was on the up and up. My friend said ‘Got it!’ and attached a smiling emoticon.

Though the North Korean nuclear issue and the financial market seem unrelated, I have been asked several times from those working in the financial sector and business organizations, such as foreign ‘chambers of commerce’ in South Korea to explain the current geopolitical situation surrounding the Korean Peninsula related to the North Korean nuclear issue. When I show up at these places, senior business executives mostly fill up the audience seats.

 

These business figures are busy people. And the reason they take time to attend a lecture on international affairs lies in the fact that there are some correlations between the geopolitics of the North Korean nuclear issue and business.

 

For example, when North Korea conducted its first nuclear test in October 2006, the first thing a Beijing-based journalist from a U.S. economic newspaper did was to call security experts to inquire about the ramifications of the nuclear test. From the foreign investors’ point of view, the Korean market always runs the perennial instability risk as a geopolitical ‘tinderbox.’

 

After seeing the relatively calm initial response by the experts, the journalist put ‘business as usual’ in his first lede to the article. The editorial department scolded him to revise the headline to a catchier version, saying that ‘this headline will not attract customers.’ Whereas the experts were unsurprised, the media demanded that the readers of newspapers should receive a piece of news with enough surprise.

 

The U.S. administration under Obama adopted the policy of ‘strategic patience’ regarding North Korea; this was Washington’s euphemism to indicate that it will not prioritize the North Korea issue. The issue actually was positioned in the bottom of the list of U.S. strategic interest.

 

Related to this, one former senior U.S. official said a surprising comment to the author. “We could have been more involved in North Korea issue if North Korea had oil reserves.’ (Here, I introduce the comment as anonymous as this was a ‘small chat’ several years ago.)

 

In the end, whether it is the executives in the financial sector, a domain that seems irrelevant to the North Korea issue, actually taking interest in the North Korean issue, or whether it is the U.S. government that was supposed to pay attention to the North Korean issue but actually not paying attention to the North Korean nuclear issue, all comes down to have some bearing with their economic ‘interests.’ In other words, one pays attention to the North Korean issue when it pays off.  

 

In this regard, it is worthy to note that President Trump frequently mentions North Korea’s ‘economic potential’ when he speaks of North Korea, unlike previous American presidents. It reflects the ‘vantage point’ of Trump, a former businessperson. He approaches the North Korean issue from an economic perspective.

 

Drawing robust U.S. interest and participation of the U.S. government is necessary for the resolution to the North Korean nuclear issue. This then also requires consideration of what concrete ‘benefits’ the resolution to the nuclear issue will offer to the U.S. The statement that ‘the North Korean nuclear issue should be resolved for the sake of peace’ may not suffice to persuade Washington. Solving the North Korean nuclear quandary is imperative for the people of the Korean Peninsula but may not be so for a faraway country, across the Pacific Ocean.

 

For example, we should show how U.S. policy investment in North Korea would benefit the U.S. For instance, we could quantify the reserve volume of natural resources in North Korea or show how U.S. outsourcing of manufacturing in North Korea will benefit the U.S. firms such as Nike, comparing the daily production and labor costs with those of China and Vietnam. Pyongyang should also actively cooperate in estimating these elements because doing so would foremost benefit Pyongyang’s own economy. It was reported that the Coca Cola Company once explored a possible plan to build a production plant in North Korea. It implies that many multilateral corporations have their eyes on the economic potential of North Korea.

 

South Korea should vigorously practice forming a partnership with the U.S., sharing knowledge and information, in envisioning a “post-nuclear” rebuilding of North Korean economy. For instance, it should seek U.S. participation in the ‘East Asian Railroad Community’ project. Doing so will better guarantee the long-lasting success of the project. To this end, Seoul should be able to illustrate, including in specific numbers, how this project may benefit the U.S. Of course, all these economic inducements to North Korea should go hand in hand with the speed of North Korea’s denuclearization. Seoul and Washington, together, should show to North Korea how it can realize its huge economic potential when it denuclearizes.

 

The ‘geopolitical’ approach of the international community to the North Korea issue has floundered for the last 25 years of the North’s nuclear saga. Despite many trepidations, President Trump is the one who has been paying more attention to the North Korean nuclear issue than any other predecessors, and he is particularly interested in the economic potential of North Korea. As the Chinese expression ‘Qǔchángbǔduǎn (learn from others’ strengths to overcome one’s shortcomings) goes, South Korea should dwell on how to utilize President Trump’s strengths. During Trump’s term, we may as well do the Trumpian way. Then, it is high time to apply a ‘geo-economic’ approach to the North Korean conundrum.