Trade with north korea what sanctions economist
Calculations by Lee and Pyun show that stricter trade sanctions, such as the ones recently adopted by the UN, could lower North Korean GDP growth rate by roughly 2 percentage points per year. So, have these sanctions already shown their desired effect?
High frequency monthly trade data illustrate that exports from North Korea to China have dropped markedly since the beginning of this year figure 6 , which indicates that China is respecting the international sanctions.
However, it remains uncertain if all sanctions are fully implemented, which is necessary to reach maximum impact. There are indications that coal imports from North Korea have dropped, but at the same time Chinese iron ore imports from North Korea have surged in the last couple of months, according to the Korea International Trade Association KITA based on Chinese customs data.
More importantly, Chinese exports to North Korea have been growing over the last couple of months figure 6. This suggests that China is not willing to economically cut North Korea loose. So, if the economic relationship between China and North Korea looks like a costly one-way street, and economic sanctions oblige China to scale down on its economic activity with North Korea, why is China still willing to provide aid to North Korea?
There are three, more strategic, reasons why this might be the case. First, if China would decide to cease or restrain exports to North Korea, containing vital goods, such as medicaments, fuel and food, this would certainly spark a humanitarian crisis. In fact, Chinese aid has become even more imminent, as several North Korean regions have been hit by serious spells of dry weather damaging crop production and leading to local food insecurities see UN, Food shortages could potentially lead to a refugee crisis, something China will want to keep out of its borders.
Moreover, it could potentially provoke a furious response from Pyongyang. Hence, the maximum pressure it can extend on Pyongyang economically is limited by the fact that it cannot cause enough pain to bring down the regime.
Third, North Korea is sitting on a treasure of natural resources, including gold ore, tungsten, magnetite, zinc, copper and anthracite. Moreover, North Korea is believed to have a large amount of rare-earth metals, which are used in high-performance optical and electronic equipment, such as lasers, magnets and superconductors. Estimates of the total worth of these commodities vary between USD 2,bn and 10,bn.
The problem is that North Korea is hardly capable of exploiting its own earthly valuables. This is where China can step in, by providing the technology and capital to exploit natural resources on a larger scale, and at the same time get a piece of the pie and safeguard the supply of scarce rare-earth metals. As such, immediate tensions turning into an outright nuclear war appeared to have subsided, but the recent exchange of angry rhetoric between both parties will put more pressure on diplomacy to ease tensions going forward.
A number of events in the near future will have to be closely monitored in the current crisis. Joint military exercises between the US and South Korea scheduled for 21 August could raise tensions, as North Korea strongly opposes these exercises.
Furthermore, North Korea often marks national anniversaries for conducting nuclear and missile tests. If Korea decides to withhold from conducting tests on these anniversaries, this could be regarded as a North Korean sign of de-escalation.
All in all, we expect tensions to remain over the near term, while an outright war is regarded as highly implausible, as there is simply too much at stake. But there is always a risk of miscalculation, given the unpredictability of the leaders in both the US and North Korea. Meanwhile, China is still regarded to have the key for reaching a diplomatic solution. But under a scenario of lower diplomatic effectiveness, the likelihood of a continuation of the status quo is growing.
As a result, it is more likely that targeted measures and sanctions will follow. Recent research by think-tank C4ADS shows that a small minority of Chinese businesses, around 5,, traded with North Korea in the period , indicating that targeted actions towards these small companies could be effective.
In brief North Korea's leader, Kim Jong-un, has been aggressively ramping up the country's nuclear programme. China's rising influence across Asia has weakened the pressure to adhere to democratic norms. The business class will not be threatened by the state so long as they remain in their place. The stand-off in the Korean peninsula is set to continue. The Economist Intelligence Unit. Forecast updates The visit, his first since , suggests that improving ties with the mainland remains a key foreign policy priority.