Possible key to N. Korea standoff: US economic pressure on China

The tension between the US and North Korea revolves squarely around military threats. Recent missile tests have raised fears that Kim Jong-un’s regime is getting inexorably closer to long-range nuclear weapons capability. The flip side, on display as the US and South Korea engage in joint military drills this week, is that North Korea says it feels under threat from the West.

Pyongyang’s state media on Aug. 20 called this year’s drills a “reckless” move that could trigger the “uncontrollable phase of a nuclear war.”

As the drills began the next day, South Korean President Moon Jae-in warned the government in Pyongyang against any fresh provocations. The allies have said the 11-day drills are defensive in nature and do not include field training like live-fire exercises or tank maneuvering, the Associated Press reported.

But if the military factors are an inescapable nub of the challenge, recent events have also been pointing toward another kind of tension – over economics – that may ultimately prove vital as the US seeks leverage to stop North Korea’s nuclear program.

It’s not just that economic sanctions can bring direct pressure on North Korea. It’s also that US economic pressure on China could play an indirect role in nudging Beijing toward altering its pivotal stance in the conflict.

So far, the uncomfortable truth has been this: The more sanctions the West has piled on the regime, the more progress it has made in missile technology. Instead of blunting its nuclear ambitions, more than a decade’s worth of sanctions have pushed North Korea into the arms of China, which so far has resisted turning the screws on its troublesome ally.

But in recent days, as China announced severe new curbs on purchases of North Korean goods, in line with a recent vote by the United Nations Security Council, President Trump has ratcheted up trade pressure on China. He ordered an investigation of China’s trade practices regarding the intellectual property of US industries.

[Editor’s note: The opening paragraphs of this article have been updated to refer to joint military drills by South Korea and the US that began Aug. 21.]

What's possible, though far from certain, is that economic pressure from the US on China and from China on North Korea – coupled with robust US military preparation for any kind of action from Pyongyang – could set the stage for talks that lead to a diplomatic breakthrough on the larger geopolitical issues.

“North Korea, by definition, is a crisis,” says Jae Ku, director of the US-Korea Institute at the Johns Hopkins School of Advanced International Studies. “Getting to the [negotiating] table is excruciatingly difficult.”

He says it will take some dramatic standoff, on the order of the Cuban missile crisis, to get Washington and Pyongyang to sit down and work out some compromise. “Until we get there, the road is fraught with many, many dangers.”

The way to get there is, he says, is partly through the kind of economic pressure that members of the UN Security Council, including China and Russia, have agreed to.

After China pledged to implement the UN sanctions, Mr. Kim backed off a threat to fire nuclear missiles at Guam, a US territory, saying he would instead “watch a little more the foolish and stupid conduct of the Yankees."

From the pariah state’s perspective, economic sanctions hurt. The UN measures announced Aug. 5 aim to slash its annual $3 billion export revenue by more than a third. China said it would implement those sanctions, cutting off imports of coal, iron and lead ores, and fish from the regime at midnight Sept. 5. Coal alone accounts for about half of the regime’s exports.

The cuts could severely crimp an economy that, by North Korean standards, seems to have been doing relatively well. Last month, South Korea’s central bank estimated that the North’s GDP grew 3.9 percent, its best showing since 1999. (The regime is so secretive and its economy so closed that any numbers are highly speculative.)

By themselves, sanctions won’t force change. North Korea has become increasingly sophisticated at evading sanctions. To procure sophisticated nuclear technology, for example, it uses a small band of Chinese middlemen, so-called hwa-gyo, who operate on the shadowy fringe of the world’s No. 2 economy and are hard to trace even for Chinese officials, points out John Park, director of the Korea Working Group at the Harvard Kennedy School in Cambridge, Mass.

China, meanwhile, has talked tough before with little change in trade volumes. The latest move “does not seem to be anything out of the ordinary,” writes Benjamin Silberstein, coeditor of North Korean Economy Watch, an online blog that monitors the North’s economy. “Whether or not it is enforced in the weeks, months or even years ahead will be the real test.”

Beijing has so far resisted cutting off oil exports, which would really cripple the regime and its military, and has kept the US from penalizing Chinese banks that give the North access to hard currency to pay for its nuclear technology. There are several reasons it’s reluctant.

Beijing doesn’t want the regime to implode, sparking a refugee crisis on its borders. Its soldiers have fought to defend North Korea. And an ally – even an unpredictable and troublesome one like North Korea – represents a buffer from South Korea and the 23,000 US troops stationed there.

That means one of the few good options for the US is to pressure North Korea by using its economic leverage over China. The leverage is considerable. Chinese exports to the US ran $460 billion last year, representing more than 4 percent of China’s GDP. (US exports to China represent less than 1 percent of America’s GDP.) The loss of even a portion of US trade dwarfs China’s total trade with North Korea, estimated at maybe $7 billion in 2014.

That is perhaps why President Trump interrupted his vacation Aug. 14 to return to Washington to order his trade representative to determine whether China is stealing US intellectual property.

The move could lead to stiff tariffs or quotas on Chinese exports to the US.

It’s a questionable strategy to link two such strategic issues. The intellectual property issue is huge, involving US high-tech industries from semiconductors to electric cars, who worry that China is systematically appropriating technology and trade secrets to build up its own companies to compete against them. If China finds a way to tamp down North Korea’s rhetoric, does the US ignore allegations of Chinese theft?

US trade officials say the trade move is independent of the North Korean crisis, but Mr. Trump has tweeted several times that the two issues are linked.

So far, all three players have left themselves some maneuvering room to avoid escalating the situation. The US investigation into Chinese trade practices could last a year or more. In an Aug. 13 Wall Street Journal commentary, Defense Secretary Jim Mattis and Secretary of State Rex Tillerson signaled that they were ready to negotiate with North Korea if it would stop its threats and weapons tests.

“The U.S. has no interest in regime change or accelerated reunification of Korea,” they wrote. “We do not seek an excuse to garrison U.S. troops north of the Demilitarized Zone.”

China, for its part, has made noises that may be aimed at prodding North Korea to cool it. In June, China National Petroleum Corp. suspended fuel sales to the regime. A semi-official Chinese newspaper said Beijing might ban oil exports.

But getting to the point that the United States can offer something that will get North Korea to give up its weapons remains extraordinarily difficult.

“At the end of the day, what all this is about is the US fear that the North Koreans are just too unstable to own nuclear weapons and [North Korea’s] fear that we will wake up someday and decide we need another Saddam Hussein,” says Joseph DeThomas, a professor at Pennsylvania State University's school of international affairs and a former State Department official who worked on Iran and North Korea nuclear disarmament.

Iraq’s Hussein was another dictator who fanned global concerns about weapons of mass destruction, and was deposed in 2003 by a US-led invasion.