Tag Archive | "china"

China, Korea, and the AI Program that Could Bring Them Together

By Nathaniel Curran

When Google’s AlphaGo computer program beat South Korea’s top Go (baduk) player Lee Sedol last March, it didn’t take long for AI experts to hail the event as a milestone in artificial intelligence and machine learning. Nor did it take long for China’s top player, Ke Jie, to issue his own challenge to the AlphaGo team, which culminated in a match two weeks ago. Ke’s claim was especially bold considering that Korea’s Lee had been handily defeated four games to one. In fact, it may have been a matter of national pride that prompted Ke to issue the challenge, considering that the game originated in China thousands of years ago.

With China and Korea both playing high-profile matches against AlphaGo this year, might now be the moment for a resurgence of Go diplomacy? Go is certainly enjoying an unprecedented degree of interest worldwide following the two AlphaGo matches, and China-Korea relations are in need of a boost after the last year of tension over THAAD.

Considering China and Korea’s shared appreciation for the game, as well as the massive press AlphaGo has received, might Go serve as a way of improving the currently frayed relations between China and Korea?

Go Diplomacy

This wouldn’t be the first time Go has been called upon to smooth relations; the game was used to help pave the way for the normalization of Sino-Japanese relations in 1972. Nor is mixing Go and politics unprecedented in the contemporary era, either; Barack Obama gave a Go set to China’s former President, Hu Jintao, on Obama’s first state visit to China.

Now, Go could present a new opportunity to strengthen the relationship between Korea and China. The relationship, currently under severe strain from the backlash against the THAAD deployment, is in quick need of repair, considering Korea’s reliance on China, its largest trading partner.

One reason that Go might be helpful in promoting better dialogue is that although the game is originally from China, it is something of an East Asian cultural bricolage, influenced by the innovations of both countries. The fact that both China and Korea have assisted in the game’s development increases its attractiveness as a tool of diplomacy in the region.

While few know the game outside of East Asia, millions play Go across China, Korea, and Japan, and each country has fostered a unique Go culture and playing style. During most of the 20th century, Japan was the undisputed global center of Go, drawing players from all over the world, including a few Westerners. But for the past thirty years, the top players have been from either China or Korea. More recently, in the 2000s, Chinese players have started to dominate the top ranks of the Go world, mirroring China’s rise on the international stage. However, Google chose to challenge Korea’s Lee Sedol in last year’s highly publicized $1,000,000 match rather than Ke Jie, or any of the other top Chinese players.

Although many associate Go with a vanishing cultural past, its continued popularity is evident; in South Korea there is a 24-hour television channel devoted to the game and Lee Sedol’s match with AlphaGo was front-page news in all the major South Korean newspapers. In China, 60 million internet users watched the match.

Go Graphic

While it’s hard to envision the exact direction Go diplomacy make take, there are a number of possible avenues. China and Korea could work together to form a new, jointly-funded Go federation to promote the game at home and abroad. Simply holding some highly publicized friendship-matches between the two countries would be one way to use the game to increase diplomatic dialogue. Another possibility is AI vs. AI matches, which might also pay dividends to each country’s tech industry.

However, in spite of its potential to improve Sino-Korean relations, the game might hypothetically lead to further division. China must feel snubbed to some degree that Google originally challenged Lee, rather than Ke Jie. Some have even suggested that China’s support for the event was a reaction to the media coverage that the AlphaGo game received. It’s also possible that the countries might struggle over who holds a legitimate claim to the game, and also its narrative. China can make the case that Go originated in China, while Korea’s claim is bolstered by the fact it has received the lion’s share of the Western press’s recent infatuation with Go. Korea also has Lee, who notched one victory against AlphaGo along the way to his eventual 4-1 defeat. Considering that AlphaGo has continued to improve since last year, Lee’s one win probably marks the last time a human will ever manage to win a game against a top Go AI, and Koreans must feel some pride in Lee’s achievement.

Whatever happens next, it’s undeniable that Go has made something of a comeback; a rarity for a game with a twenty-five-century history. Whether the ancient game will serve to exacerbate tensions in East Asia or relieve them remains to be seen.

Nathaniel Curran is a PhD student at USC’s Annenberg School of Communication and a 2017 COMPASS Summer Fellow. The views expressed here are the author’s alone.

Photo from Prachatai’s photostream on flickr Creative Commons.

Posted in slider, South KoreaComments (0)

China’s Potential Actions in a North Korean Nuclear Contingency

This is the fourth in a series of six blogs looking at a nuclear crisis at North Korea’s Yongbyon nuclear facility. Other pieces will look at the prospective issues of a nuclear crisis in North Korea from the perspective of North KoreaRussia, Japan, South Korea and the United States.

By Yun Sun

Although information on the exact technical specifications of the North Korea nuclear programs remains scarce, insufficient and in-definitive, the prevailing perception is that many, if not most of these programs are located close to the Chinese border.  This is perhaps inevitable given the limited size and terrain of North Korean territory. The famous Yongbyon Nuclear Scientific Research Center, for example, is located 110 km from the Chinese border, while the Punggyeri Nuclear Test Site is around 90 km away. The safety of these nuclear facilities, especially the potential nuclear radioactive contamination has become an increasing concern for the Chinese government given their geographical proximity to China. In 2013, North Korea’s nuclear test had propelled the Chinese Ministry of Environmental Protection to set up dozens of radiation detectors and announced the results at an unprecedented press conference. Although the radiation levels in major cities were reported to be within the normal range, complains from the Chinese public opinions were still rampant.

China’s planning and preparation for a North Korean contingency in recent years have been mostly focused on an internal instability scenario, most likely an implosion caused by a military coup or an unexpected death of the North Korean leader. In such a scenario, the common expectation is that China is prepared to intervene to preserve a functional North Korean government as well as the survival of North Korea as a country if South Korean and/or American intervention is detected. Similarly, if the contingency is a conflict between the two Koreas and U.S. steps in as Seoul’s ally, China will also most inevitably intervene militarily. Depending on the scenario, the impact and the grand bargain, China could aim at supporting the North Korean regime against foreign invasion, establishing buffer zone along the border to prevent refugee inflows, or imposing a ceasefire.

Despite the Chinese preparation for a political/military contingency in North Korea, however, a North Korea contingency due to damage to its research reactor’s core causing the core to burn or a nuclear meltdown at its light water reactor is much less discussed in the Chinese policy community. This could be because that the probability of a nuclear contingency is significantly smaller than the probability of political instability due to implosion/explosion, therefore has not been prioritized. It could also reflect China’s lack of information, experience and anticipation for a nuclear meltdown scenario. After all, China has never been directly exposed to a nuclear crisis domestically or on its border.

In a Yongbyon reactor crisis, China’s first priority would be to prevent or minimize nuclear radioactive contamination of the Chinese territory. Yongbyon is located 110 km from the Chinese border. In both cases of Chernobyl and Fukushima, the nuclear disaster exclusion zones set up have been of 30-km radius approximately. This probably means that China will not be the center of nuclear contamination in the event of a nuclear crisis in Yongbyon, but some level of radiation contamination seems inevitable.

China will see the handling of a nuclear crisis within North Korean territory primarily as the responsibility of the North Korean sovereign government. After all, a crisis with North Korea’s nuclear reactor does not automatically constitute the sufficient justification for international intervention. However, given the widely shared assumption that North Korean capacity, equipment, resources and ability to handle a nuclear crisis are extremely limited, China as North Korea’s sole ally and main supporter will likely be the first country to be asked to provide assistance. And given the nature of a nuclear disaster, the Chinese agencies to provide such assistance are more likely to be military rather than civilian.

Some Chinese military analysts have demonstrated certain levels of confidence about the Chinese ability to deal with North Korean nuclear reactors, citing the shared Soviet origin of the nuclear technologies of both China and North Korea. However, the counter-argument against the Chinese presumed confidence is that older technologies and facilities are more difficult and more dangerous due to their outdated and less sophisticated design. Having said that, the Chinese policy community seems to be convinced that China will have to be responsible, at least partially, and provide technical assistance, dispatch experts, engineers and military personnel for evacuation and the establishment of the exclusion zone.

China will also prioritize the internal stability of North Korea in the event of a nuclear contingency. Depending on the level of disruption and turmoil the nuclear crisis creates, the Chinese military personnel could include a stabilization force to prevent political upheavals. This presumably will be done in coordination with the North Korean government.

China is highly likely to work with Russia to jointly intervene in a crisis involving a North Korean nuclear reactor. Russia is also subject to radioactive contamination given its geographical proximity and therefore has a vested interest. More importantly, Russia is better positioned and equipped to deal with nuclear disasters given its technical knowledge of North Korean nuclear programs and its past experiences with Chernobyl. Russia has a relatively friendly and positive relationship with North Korea. A joint operation with Russia will not only dilute the responsibility China has to carry, but also diffuse a perception of Chinese unilateral intervention by North Korea and by the international community.

Given that a nuclear crisis in North Korea will inevitably create a humanitarian disaster, including radioactive contamination crisis, food crisis and refugee crisis, international humanitarian aid will be solicited and most likely provided. However, HADR (humanitarian assistance and disaster relief) efforts by foreign militaries other than China and Russia most likely will be rejected by North Korea due to its heightened sense of insecurity and vulnerability in a nuclear contingency. North Korea and China will share the goal of preventing South Korea and the U.S. from exploiting the situation to facilitate invasion or unification.

South Korea and the U.S. could possibly refer the nuclear crisis to the UN Security Council. However, without sufficient justification that the nuclear crisis and radiation leakage creates a dire threat for regional and international peace and security, and/or a dire humanitarian disaster, any resolution that China will support will be unlikely to authorize a military intervention. China most likely will support the United Nations to organize and manage the international humanitarian efforts, including aids and donations from South Korea and the United States. China could even request that IAEA dispatch expert teams and provide technical assistance to deal with the nuclear situation. However, military personnel are unlikely to be the invitation list.

Despite North Korea’s damage of the Chinese national security through its nuclear program, a crisis at North Korea’s nuclear plant does not change the geopolitics involved in the Korean peninsula for China. A nuclear disaster in North Korea will increase the cost of China’s current policy, and China probably will use the opportunity to shape Pyongyang’s thinking and curtail its future nuclear provocation. However, China’s fundamental calculation regarding the U.S.-ROK military alliance and U.S. role in the region will not evaporate from a nuclear disaster in North Korea. Under the current circumstances, China will continue to want to preserve the North Korean state until it is shown a desirable endgame in a unification scenario. China’s potential reactions to a nuclear crisis, including military intervention, technical assistance, humanitarian aid and cooperation with Russia all originate from that calculus.

Yun Sun is a Senior Associate with the East Asia Program at the Stimson Center. The views expressed here are the author’s alone.

Photo from Beyond Neon’s photostream on flickr Creative Commons.

Posted in North Korea, sliderComments (5)

Just How Dependent is South Korea on Trade with China?

By Kyle Ferrier

China’s punitive economic measures against South Korea over THAAD may have shrouded Beijing-Seoul relations in uncertainty, yet they highlight Korea’s economic dependence on China. Throughout the extensive media coverage of impacted Korean companies as well as the regional geopolitical implications, particularly as they relate to the North Korean problem, is a common thread of economists suggesting Korea is too dependent on China for growth. While this is hardly a new development, recent events seem to be reinvigorating scrutiny of the size of bilateral ties. But, in the context of other global relationships how does this one stack up?

The Korean economy is reliant on trade for about half of its growth, making each large external relationship of crucial importance. Of the nearly $500 billion goods exported to the world last year, around $125 billion were sent to China, or a quarter of all exports, placing China at the top of Korea’s list of export destinations. Though both trade as a portion of GDP and the percentage of total exports sent to the top export destination are high, it is not a unique phenomenon, as shown in the Chart 1. In terms of GDP, Korea is the eleventh largest economy in the world. Among its peers in the top sixteen largest economies it is only just slightly behind Germany in terms of total exports as a portion of GDP. Korea’s exports to China as percentage of its total merchandise exports in 2016 is behind Australia’s 31.6 percent, but this pales in comparison to Canada and Mexico’s exports to the U.S., 76 and 81 percent of exports, respectively.

Merchandise Trade

Chart 2 provides a complementary perspective. It measures variance in the share of total exports between the top two export partners and among the top five partners for a subset of countries from Chart 1. Or, in other words, it illustrates how spread out exports are. The first bar is reflective of the spread of exports to the top five export partners. The lower the bar, the less of a difference in the share of total exports between each partner, or the more equally distributed exports are. The second bar reflects the difference between the first and second ranked export destinations. The higher the bar, the bigger the drop-off between the share of total exports. This is also suggestive of the extent to which the first bar is driven by the top export market.

Chart 2 reveals exports for major European economies are more equally spread out than in major Asian economies, with the exception of Indonesia. It also reveals that within this group of Asian economies, Korea and Australia stand out for their dependence on exports to China. Although Japan may also have a more unequal degree of export concentration within its top five markets, the cause for this is divided between the U.S. (20.2 percent) and China (17.6 percent).

Variance Graphic

Yet more is revealed on how the Korea-China trade relationship compares to others if the charts are observed together. Korea and Australia may both heavily rely on trade with China, but Korea is nearly twice as dependent on exports for growth as Australia. While Germany is the closest to Korea in terms of exports as a percentage of GDP, exports are much more equally distributed among its top five trading partners. However, clearly absent from Chart 2 are Canada and Mexico, the inclusion of which would have dwarfed the differences between the selected Asian and European states due to their outsized trade ties with the U.S.

In essence, characterizing the magnitude of Korea’s trade dependence with China in a global context really depends on how it is framed. Compared to other large economies in Asia it is high, and to European countries very high, but in relation to North America is it is practically negligible.

Though the size of the relationship is important, so also is the composition of trade, especially considering why Korea-China economic ties are again garnering attention. Around three quarters of South Korean exports to China is processing trade, meaning goods are sent to China only to be assembled and then exported to a third country who is the ultimate driver of demand for these Korean exports to China. Australian exports to China on the other hand are driven by raw materials (i.e. HS codes 26, 27, and 71), composing nearly three quarters of all exports to China and are directly tied to domestic Chinese demand. During the past several months when Beijing has seen to be punishing South Korea over THAAD, Korean exports to China have increased, rising 10.2 percent year-on-year in April and 12.1 percent in March. While there is obviously still room for China to hurt the Korean economy, the fact that most Korean exports to China are tied to global demand limits the extent to which Beijing may influence economic ties on political grounds.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone. 

Photo from SeoulHappyLife’s photostream on flickr Creative Commons.

Posted in slider, South KoreaComments (0)

Is the Hallyu Crisis with China Over?

By Jenna Gibson

Beijing has approved the broadcast of a new Korean drama that had been co-produced by a Korean and a Chinese company, according to a source in the Chinese entertainment industry, making it the first Korean show to get the green light since before the THAAD spat.

This move is good news for Korean entertainment companies, which have been lamenting the Chinese ban which had slowly pushed Korean stars out of the spotlight throughout last year and culminated in direct retaliation against tourist packages and Lotte Department stores. It also bodes well for drama co-productions, which had seen tremendous success in last year’s standout Descendants of the Sun. At the time, before THAAD derailed things, Korean-Chinese collaboration was seen as the new frontier in Hallyu, and key to the continued success of Korean creative content in the Chinese market.

What’s interesting is the impetus for China’s reversal on allowing Hallyu content. Beijing is likely trying to start off on a good foot with newly elected Korean President Moon Jae-In, himself a skeptic of the THAAD system, in an attempt to give Moon some leeway should he decide to review the deployment.

A recent op-ed in the People’s Daily-affiliated Global Times insisted that “It is likely that Moon will stop THAAD’s deployment,” saying, “The huge economic losses South Korea has suffered are a result of the Chinese public’s anger. South Korea, which relies heavily on China economically, needs to weigh its potential gains and losses carefully” and that “Both Beijing and Seoul should take Moon’s presidency as an opportunity to promote warmer bilateral relations.”

But in reality, Moon has little room to maneuver at this point. THAAD is already in place and operating at some capacity, and recent missile launches from North Korea (the second of which was detected by THAAD) have highlighted its necessity in the public eye.

Although there was a dip in approval last November, the Korean public has largely remained favorable toward the THAAD system, according to polling by the Asan Institute in Seoul.  As of March, 50.6 percent of Koreans approved of THAAD, with 37.9 percent opposed. Perhaps because of this, President Moon has softened his position from outright opposition during the early stages of the campaign to stating that he objects to the way the decision was made, not the system itself.

As Asan Vice President Choi Kang pointed out in a KEI podcast after the election, President Moon may be constrained both by domestic politics and public opinion. Moon’s Minjoo Party only has 120 seats out of 300 seats in the National Assembly, and he failed to breach 50 percent of the vote during his election.

“How he can make a coalition or compromise with opposition parties is going to be a very, very critical issue for him to handle in the early phase of his presidency,” Choi said.

This could be particularly difficult when it comes to China, which has seen a steep decline in popularity among the Korean public since they stepped up their economic pressure over THAAD. Beijing’s economic retaliation has included the ban on selling tourist packages to Korea as well as cancelled concerts and a block on Korean entertainment content being uploaded to streaming sites.

According to a new report from the Korea Institute for Industrial Economics and Trade (KIET), “China’s ban on South Korean cultural imports will amount to 5.6 trillion won (US$5.02 billion) and 15.2 trillion won (US$13.6 billion) in direct and indirect damage in the consumer goods distribution sector” if it continues for six months. New numbers from the Korea Tourism Organization show a 66 percent year-on-year drop in Chinese visitors in April, driving much of the estimated losses for industries such as clothing and cosmetics.

“It’s quite difficult for South Korea to improve its relations with China because public understanding of China has deteriorated over several months,” Choi said. “So unless there is a positive sign coming from China on this economic pressure, it is very unlikely for the South Korean government to improve drastically its relations with China.”

Now that China seems to be offering an olive branch, public opinion may begin to shift back in Beijing’s favor. But after months of panicked headlines over China’s latest crackdown, it’s unlikely that one fantasy romance drama will be enough to turn things around entirely.

At this point, Beijing may continue to roll back its content and tourism bans in the hopes of wooing President Moon to their point of view, or as a face-saving measure. Either way, though, Chinese leadership would be ill-advised to hold their breath for a THAAD removal.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Image from LG전자’s photostream on flickr Creative Commons.

Posted in China, Economics, slider, South KoreaComments (0)

The Challenge of Managing Relations with North Korea for the Moon Administration

This is the eighth in a series of blogs looking at South Korea’s foreign relations for the new Korean administration. The series also includes blogs on relations with China , the United States, Japan, Russia, the European UnionASEANAfrica, the Middle East, and Latin America

By Troy Stangarone

As the new Moon Jae-in administration begins to put its personnel in place, one of the more challenging international relations to manage will be North Korea. In the strictest sense, with the closure of the Kaesong Industrial Complex, South Korea no longer has relations with North Korea, though this is something that the Moon administration hopes to change. However, even if dialogue or engagement with North Korea restarts under the Moon administration, handling relations with Pyongyang will be complicated by the need to manage relations with other powers in the region as well.

Developing relations with North Korea is complicated, to say the least. Since Roh Moo-hyun left office in 2008, when Moon was his chief of staff, North Korea has conducted four additional nuclear tests and numerous missile tests as it works to advance its nuclear program. It also sank the South Korean naval ship Cheonan and shelled Yeonpyeong island resulting in the deaths of 48 South Korean military personnel and 2 civilians in total.

As a result of these actions the international community and South Korea have placed a range of sanctions on North Korea rolling back the economic interactions that were expanded under the Sunshine Policy. These include the May 24 measures which ended trade outside of the Kaesong Industrial Complex, limited expansion within Kaesong, halted aid, and forbid North Korean ships sailing in South Korean waters. More recent measures closed the Kaesong Industrial Complex and banned ships that docked in North Korea from traveling to South Korea for a year.

Expanding ties with North Korea would require rolling back these measures in part or finding ways to work around them, as well as ensuring that any new activities were in compliance with United Nations sanctions. Under the Park Geun-hye administration, South Korea faced these same challenges and encouraged firms to invest in Russian rail companies to help further the administration’s Eurasia Initiative.

As long as North Korea continues to conduct weapons tests, the scope for creative avenues to engage the North will continue to narrow. North Korea has become significantly more aggressive in its testing patterns under Kim Jong-un and seems to be committed to completing its development process.

Engaging with North Korea also requires a willing partner, something that it is unclear is available in Pyongyang. Park Geun-hye came into office with the policy of Trustpolitik, hoping to slowly build trust between North and South Korea on humanitarian issues such as family reunions, but was quickly met with a nuclear test, a “space launch,” and the North Korean withdrawal of its workers from Kaesong. Ultimately, North Korea’s behavior pushed her away from a policy of engagement. President Barack Obama was also originally willing to engage North Korea having expressed an openness in his 2009 inaugural address and shortly after Kim Jong-un came to power with the Leap Day Agreement, but was rebuffed on both occasions by North Korean provocations. Ultimately, the Obama administration settled for a nuclear deal with Iran and reopening relations Myanmar and Cuba instead of continuing to work on cutting a deal with North Korea.

It seems as though North Korea intends to provide little deference to Moon despite his stated desire to engage, having tested a ballistic missile capable of hitting Guam and Japan five days after Moon came into office. However, the test more likely was designed to send a message to China as Xi Jinping was set to give a major speech at his One Belt, One Road conference with 29 world leaders looking on only hours after the test. The proximity to Moon’s inauguration may merely have been coincidental in light of the larger Chinese target.

Further complicating efforts to manage relations with Pyongyang is Seoul’s need to manage relations with the United States, China, and other powers in the region and coordinate policies. While no international relationship is truly independent, South Korea’s approach towards North Korea is perhaps more constrained by the policies of other countries than other policy areas.

Poor relations with Washington or Beijing potentially hinder efforts by Seoul to directly engage Pyongyang, as China has the ability to undermine South Korean efforts directly and Pyongyang has consistently expressed a preference for bilateral talks with the United States. Seoul will need to avoid any outcome where it is estranged from Washington, which potentially encourages the United States to seek solutions not involving South Korea. Tacking too far away from Washington could result in outcomes such as a preemptive military strike on North Korean nuclear installations that Seoul would want to avoid.

Prior experience with the Sunshine policy also demonstrates that when Washington isn’t on board, the policy is less effective. If Seoul wants engagement to be viable, it will need to find a way to weave its strategy into the United States’ policy of maximum pressure and engagement, while also bringing China along on the broader strategy, which is also one that will require gaining Russian and Japanese support.

Managing relations with North Korea will require a delicate balance by South Korea. It will need to find space within the sanctions regime to develop engagement, but also need a willing partner in Pyongyang to make any strategy of engagement viable. At the same time, it will need to manage the interests of the other parties in the region. If a South Korean policy of engagement were to place China under greater pressure from the United States, Seoul may find an unwilling partner in Beijing as its economic and geostrategic interests are challenged. At the same time, Seoul will need to develop a policy that the United States can embrace rather than work against. Alliance management and North Korea policy has always worked best when Seoul and Washington are on the same page and that is unlikely to change in the near future.

Troy Stangarone is the Senior Director for Congressional Affairs at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Prachatai’s photostream on flickr Creative Commons.

Posted in Inter-Korean, North Korea, slider, South KoreaComments (9)

Will Gasoline Prices Shake Pyongyang?

By William Brown

Maybe not, given the still small use of cars in North Korea, but last week’s momentary doubling of prices at Pyongyang service stations, according to Daily NK reporting, on rumors China would cut off crude oil supplies in the event of a nuclear test, should have caught the attention of Kim Jong-un and his economic and security advisors.  Diesel prices, apparently, behaved similarly.  Prices had given up about half their gains by the end of the week amid no indications of either a nuclear test or an actual crude cutoff.  Still, more than any other sanction imposed on the country, a cutoff of Chinese crude oil, translated into price hikes, angry customers, and slashed revenues, would cause big problems for Kim Jong-un as he pursues his byongjin linethe so far successful parallel development of the country’s nuclear and economic strength.

China Exports to NK

Looking forward, the price volatility suggests the North Korean landmass might not be the only thing shaking following its next nuclear test, and opens new avenues for affecting change in North Korean society.  With widespread markets for commodities and services, and prices that apparently adjust to changes in supply and demand conditions, North Korea is in a far different place than either of Kim’s two predecessors could have imagined; more prosperous and productive, but also much more vulnerable.  Speculation, driven even by rumors, could see a resumption of destabilizing inflation, a plunge in the value of the won, and trouble for the government reminiscent of the botched currency revaluation in 2009, as Kim was getting ready to take power.  Kim seemed to have learned important lessons from that episode, and has managed to get a grip on inflation and currency devaluation, probably by allowing productivity enhancing market activities to continuously expand.  But as a reminder of how little we know about the government’s ability to control markets, the volatility in gasoline and diesel prices stand in perplexing contrast to relative stability following China’s announced cuts in coal purchases just a month earlier, and the loss by now of about $1 million a day in national income.  One would have thought this would spur traders to dump won and buy dollars but this, apparently, has not happened. At least according to the same Daily NK reporting.

China Exports to NK Graph 2

Tinkering with North Korea’s crude oil supply, and the income it provides, would be of far greater importance than the coal shutoff and would be treated very cautiously by Beijing.  In a possible trial balloon in late April, Beijing allowed the first-ever hints of halt to its free delivery of about 50,000 tons of crude oil per month (valued at about $20 million at current Chinese export prices) if Pyongyang continues to test its nuclear weaponry, thus threatening to topple a longstanding pillar of the Mao Tse Tung – Kim Il Sung “lips and teeth” relationship.

Since the collapse of the Soviet Union, China has stood by North Korea, providing all the crude oil that the country refines and uses, in a small rail and pipeline served by a Chinese-built refinery across the border from Dandong in North Korea’s northwest, not far, ironically from the satellite launch site. The Soviets provided crude oil to a similar refinery just inside the northeast border, supplied by ship, but this has gone largely unused since trade collapsed in the early 1990s. Much smaller amounts of petroleum products are imported, again mostly from China but, aside from an annual gift to help with agriculture, these imports are probably on commercial terms.  There are no hints that these product shipments would be subject to a Chinese boycott and, since they are profit driven, they would likely continue and even expand.

Chinese authorities have long been sensitive about the crude shipments, telling foreign academics and officials that this is a national security issue and thus any discussion is off the table.  China was a net crude oil exporter when the presumed aid agreement was signed and oil flowed freely from the newly found Daqing oil field in Heilongjiang. But now China is a huge oil importer, and the supergiant oilfield is in decline, so the oil it gives North Korea is the same as if it were imported, and paid for by taxes on Chinese people, something Beijing probably does not want to advertise.  And, by now, the uncollectable North Korean debt on this deal must have accumulated to tens of billions of dollars.  Curiously, in 2014, Chinese Customs authorities stopped recording the crude exports even though sources indicate the oil continues to flow as normal. Placing the data off the books may have been meant as a warning that the supply is not endless and that Pyongyang needs to earn its way, or at least stop creating international tensions.  These new warnings, however, are more direct and open to the public, guaranteed to add to the Chinese public’s musings over support to Kim Jong-un.

Though rich in coal and hydropower energy resources, and uranium, North Korea has no oil or gas resources and is entirely dependent on outside sources for transportation fuels. It has been adept at using its coal for petrochemical and fertilizer purposes, and much of the rail system is electrified, though in poor condition.  With liberalized markets, demand for taxi, truck, and bus transportation has exploded in recent years, but is highly sensitive to price hikes and supply disruptions.  In fact, the markets probably could not survive without gasoline and diesel-fueled transportation and agriculture would be severely harmed.

The rumors began when the unofficial English language affiliate of People’s Daily, Global Times, included an editorial on April 12 suggesting China might go along with new UNSC sanctions and cut crude supplies if North Korea tested a nuclear weapon[i].  This was followed on April 21 when a leading academic, and an authority on the subject, told a Japanese newspaper that China should consider such a cutoff.  Soon thereafter, gasoline supplies in Pyongyang appeared to have been restricted and prices jumped from an average of 8,400 to 9,600 won per kilogram (about $3.00 a gallon at the unofficial but widely used exchange rate) to 17,625 won ($6.10) on 27 April, before falling back to 14,800 ($5.20) by  May2, according to Daily NK. Diesel prices rose even more, from 4,720 to 17,150 won per kilogram. Although these prices seem high for a country as poor as North Korea, the market productivity engendered by a truck or a taxi, compared to a bicycle, is enormous and thus well worth the expenditure. Moreover, with no state subsidies, the prices must be higher than in neighboring China to induce the imports. No official statements confirm that China is willing to halt the oil shipments, and the price jumps might engender more concerns in Beijing, as well as Pyongyang, over potential instability.

Gasoline has long been dealt with inside the communist state’s fixed price system and thus transferred only by ration or through the central planning mechanism.  Private use was strictly not allowed.  But in recent years, as markets have sprung up for other products, gasoline has come to be sold at market prices, first by military or other government organizations which apparently have needed the cash—often U.S. dollars or Chinese yuan—and now, during the Kim Jong-un era, in relatively normal gasoline stations sponsored by several government and military government organizations which apparently are drawing on their state plan allocations or they are able to purchase products in China, sell them in North Korea, and make a profit.  This has allowed a rapid increase in private automobile traffic, including many taxis and commercial delivery vehicles and some private automobiles. As compared to when all such transportation was by bicycle or bus, the gasoline use has spawned a huge rise in productivity and marketization. Whereas this commercialization has given a substantial boost to the otherwise still moribund, and sanction laden, general economy, security officials, and communist ideologs, must feel threatened.

Information is sketchy about where the gasoline comes from and how the private sector or the government organs earn the hard currency needed to import it. Chinese trade data shows a steady increase in gasoline shipments to North Korea, recently eclipsing a slow rise in diesel and other middle distillates imports.  But these are still much lower than the crude oil shipments and, presumably, much of the gasoline now comes to the market via unsanctioned transfers from the refinery.  This makes sense since North Korean state enterprises that receive their rations from the refinery are hard pressed to come up with the increasing amounts of money needed to purchase goods and services in the markets, and thus they must be tempted to sell, rather than consume, their planned oil allocations.  This, of course, creates havoc for the planning system which seems to have largely broken down.

China would have several options should it want to use oil to penalize Pyongyang for a nuclear test.  A short-term halt in crude oil shipments, a permanent end to the credit arrangement forcing Pyongyang to pay for the imports, or a cutoff of all crude and product shipments. Each would have different impacts and Beijing would likely try to decide which would have the most desired impact—deterring the nuclear program while not leading to instability. One way to do that would be to end the credit arrangement but, since it has become such a valued and important commodity, continue to allow or even induce more private trade in petroleum products. North Korea buyers would have to come up with more hard currency and would try to do this by increasing their private exports, so trade might even expand to the advantage of the Chinese and to the North Korean private sector.  The impact on the North Korean government, on the other hand, would be severe as it would not only have to pay hard currency for its own considerable use of petroleum, but would also no longer be able to earn hard currency from its domestic sales.

Pyongyang, of course, could react by closing off private sales and use valuable hard currency to import petroleum for its own use.  It would likely try but have a hard time finding a foreign supplier for the old Soviet refinery, which can be served by ocean tanker, perhaps in return for some of the plant’s output.  Cutting private sales might be necessary, but it would go against the grain of Kim Jong-un’s policies to date.  Whatever can be said about his stubbornness in pursing nuclear weapons, and in terrorizing his subordinates with selective executions, Kim has generally made good on his promise to push forward economic development.  He inherited an economy with hyperinflation and a disintegrating domestic currency, but by allowing productivity enhancing markets to expand he has been able to control inflation and the won, at least for the moment  All of this would likely be lost, however, should Chinese crude oil deliveries suddenly stop.  In this context, even if short lived, the jump in gasoline prices must be enough to give him and his advisors pause over when to undertake the next nuclear test.

William Brown is an Adjunct Professor at the Georgetown University School of Foreign Service and a Non-Resident Fellow at the Korea Economic Institute of America. He is retired from the federal government. The views expressed here are the author’s alone.

Photo from Joseph’s photostream on flickr Creative Commons.

Posted in North Korea, slider, UncategorizedComments (1)

Why This May Be South Korea’s Most Consequential Presidential Election

By Troy Stangarone

After months of protests across South Korea that culminated in the impeachment of President Park Geun-hye, South Koreans will go to the polls on May 9 to select her successor. Regardless of which candidate wins the election, the upcoming presidency may be the most significant for South Korea since the transition to the opposition with Kim Dae-jung cemented the democratic ideal of the transition of power and he was thrust into managing what is known in South Korea as the IMF crisis. The next administration will come into office at time when South Korea faces a wide array of economic, political, social, and security challenges.

The next president will need to begin by restoring confidence in government. The impeachment of President Park has divided society and exposed the continuing ties between government and business that have left a legacy of scandal trailing each administration. Prior scandals have not always directly involved the president, but the impeachment indicates a growing intolerance in South Korean society for ever too close of relations between the government and business. Addressing this issue will mean the next administration will need to consider reforms in both government and the chaebol.

If restoring confidence in government were not challenging enough, the next president will come into office at a time when South Korea faces critical domestic and international challenges that will need to be addressed. The South Korean economy in many ways is at a crossroads. After years of success as an exporting powerhouse, exports have been largely stagnant in recent years and South Korea faces increasing competition from lower wage countries such as China which have cut into key sectors for South Korea’s economy such as steel and shipbuilding, while becoming increasingly competitive in consumer electronics as well.

The challenges from international economic competition are coupled with domestic economic challenges. South Korea’s rate of economic growth has continued to decline and is expected to only by 2 percent in 2018. As the economy slows, income inequality has risen and will likely only continue to do so the economy becomes more oriented around services industries.

To begin addressing slowing economic growth and income inequality, the next administration will need to focus on structural reforms and labor market reform. South Korea needs structural reforms to address overcapacity in troubled areas such as steel, shipping, and ship building. At the same time, reforms are needed in the labor market as well. South Korea’s current two-tiered system made of a well-protected class of permanent workers and temporary workers who have few protections has created rigidities in the labor market that have limited job growth, especially for the young.

South Korea’s economic challenges have also created social challenges. As South Korean society rapidly ages, young South Koreans have seen their opportunities narrow even with one of the highest rates of college graduates in the world. While facing decade long highs in unemployment, young South Koreans face concerns about their future in a slowing economy and in a society that they see as constraining their opportunities.

If the young have seen increasing challenges, South Korea itself faces impending problems from its rapidly aging population. In the years ahead, over the next administration the working age population is expected to decline to just under 36 million and continue declining in the years after while the overall population will continue to grow until 2030. This means an increasing percentage of South Korea’s population will be in retirement with fewer workers to support them. This challenge is compounded by South Korea having the highest level of old age poverty in the OECD despite President Park having worked to improve the social safety net.

South Korea’s international relations may not be any less complex than its domestic challenges. On top of the agenda will be North Korea. While that will not have changed from prior administrations, Pyongyang has significantly advanced its nuclear weapon and missile programs under Kim Jong-un. As a result, the strategic situation could significantly change under the next administration should North Korea successfully deploy not only a nuclear deterrent but a viable second strike capability.

As a result, the administration may find its options for dealing with North Korea constrained, both by North Korea’s progress on its weapons programs and the policies of regional states. Relations with China have soured over the decision to deploy THAAD to defend against North Korean missiles, and China’s use of economic pressure may leave the next administration with a Scylla and Charybdis type dilemma of accepting significant economic harm or weakening South Korea’s defenses against North Korea.

Managing this situation will require close relations with the United States and Japan, both of which could be problematic if divisions over how to handle North Korea develop, or in the case of Japan historical issues complicate relations. While the Trump administration so far has been more conventional in its approach to North Korea than many foreign policy issues, Seoul and Washington will need to ensure that they do not diverge on how to handle North Korea. At the same time, there could be tension in the relationship, as the Trump administration is taking a harder position on trade and has indicated that it may review the KORUS FTA.

Whoever South Korea elects as president in May will face a more fluid domestic and international environment than prior South Korean presidents, one shaped by the impeachment and the need to enact reforms. While South Korea has gone through difficult economic times, such as the Asian Financial Crisis, or faced challenging relations with the United States or China, it is the degree and the number of challenges that South Korea may face over the next five years that make this election so consequential.

Troy Stangarone is the Senior Director for Congressional Affairs at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from sinano1000’s photostream on flickr Creative Commons.

Posted in slider, South KoreaComments (1)

Chinese Tourists to South Korea Drop 40 Percent in March Amid THAAD Row

By Jenna Gibson

It’s official – new numbers from March confirm that China’s THAAD retaliation has significantly cut into South Korea’s tourism industry.

According to new data released today by the Korea Tourism Organization, the number of Chinese tourists arriving in South Korea fell 40 percent year-on-year in March 2017.

Only 360,782 Chinese visitors came to South Korea in March, down from 601,671 in March last year.

Considering that China’s alleged travel ban only took effect on March 15, about halfway through the month, it’s possible that April’s drop could be even more dire.

South Korea’s tourism industry is heavily reliant on Chinese visitors – in 2016, they made up 47 percent of all tourist arrivals and 70 percent of sales at Korean duty free shops.

According to a previous KEI article, “Chinese tourists spent an average of $2,391 per person while visiting Korea – meaning the 8 million Chinese tourists who visited Korea in 2016 brought nearly $20 billion into the local economy.” So, if the 40 percent cut in visitors results in a corresponding drop in revenue, the Korean tourism industry could lose up to $7.7 billion as a direct result of China’s THAAD retaliation.

Chinese Tourism Graph March

There is a silver lining in the March tourism data. Despite this massive 40 percent drop in visitors from China, the total number of people entering South Korea in March was down only 11.2 percent over March 2016. This is thanks in large part to a 22 percent jump in visitors from Japan, the second-largest group of tourists in Korea after China.

Other countries such as Taiwan, Myanmar, Vietnam and Mongolia also showed significant increases. This may be a good sign for the Korean government, which is heavily targeting Southeast Asia and the Middle East to diversify the industry and decrease their reliance on tourists from China.

The Ministry of Culture, Sports and Tourism is reportedly focusing more on advertising in Southeast Asia and Japan, and Seoul has started posting signs at major tourist destinations in Bahasa Indonesia, Malaysian, Thai and Vietnamese.

In addition, the KTO has been increasing their focus on tourists from Muslim-majority countries, helping local restaurants get halal accreditation and even hosting a Halal Restaurant Week at the end of last year to highlight Korean food options for Muslim visitors.

Meanwhile, just after the ban took effect, the Korean Ministry of Trade, Industry and Energy promised to provide 400 billion ($349 million) to support businesses affected by the THAAD retaliation, including those in the tourism industry.

This is not the first crisis that the Korean tourism agency has dealt with in recent years. During the peak of the Middle East Respiratory Syndrome (MERS) outbreak in July 2015, total tourism arrivals were down 53.3 percent over the year before, including a 63.1 percent drop in arrivals from China. Later that year, the Korea Culture and Tourism Institute estimated that MERS cost the tourist industry 3.4 trillion won ($3 billion) in lost revenue. The fact that the tourism industry was able to bounce back from that significantly greater drop bodes well for its ability to deal with this crisis as well.

While it remains to be seen how deep this THAAD spat will cut the Korean tourism industry over time, it is clear from these new numbers that the Chinese retaliation should not be taken lightly. As the THAAD system continues to go through the deployment process, Korea will have to keep an eye on the immediate as well as secondary effects of China’s policies.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Graphic by Jenna Gibson. Photo from Tom Page’s photostream on flickr Creative Commons.

Posted in China, Economics, slider, South KoreaComments (4)

China: Challenges for the Next South Korean Administration

This is the first in a series of blogs looking at South Korea’s foreign relations in the run up to the next Korean administration taking office on May 10. The series also includes blogs on relations with North Korea, the United States, Japan, Russia, the European Union, the Middle EastASEAN, Africa, and Latin America.

By Mark Tokola

A question frequently asked is whether the next South Korean administration will tilt towards China and away from the United States, based on Seoul’s purportedly shifting perception of the relative importance of the two countries.  In reality, it is not helpful to judge whether the United States or China are more important to the Republic of Korea.  There is no simple reply to the general question and, honestly, there is no reason to answer it.

Decisions are particular and based on practical requirements, not on answering a generalized question about which country is more important than another.  For example, Korean military procurement decisions almost always will be based on compatibility requirements with their U.S. military counterparts.  Jeju-do tourism authorities probably should look more towards accommodating Chinese tastes than American.  A Korean university looking to partner with a cutting-edge, innovative foreign university would be wise to partner with an American rather than a Chinese academic institution (15 of the world’s top 20 universities are American, none are Chinese).  Korean construction companies interested in participating in Asian regional infrastructure projects probably should head for Beijing or Shanghai rather than San Francisco or Dallas.

Moises Naim in his book, The End of Power, recommends that everyone should “get off the elevator” and stop obsessing about who is up and who is down.  Heeding that advice, we can discuss the challenges that South Korea faces in its relationship with China without re-measuring the distances between Seoul and Beijing, and Seoul and Washington. What is generally true is that South Korea will benefit from cooperative relationships with all three of the countries with which it has the most to gain or lose (exempting North Korea): the United States, Japan, and China.

The imminent question facing the next South Korean administration in regard to its relations with China is what to do about the THAAD anti-missile system.  The Park Geun-hye Administration in July 2016 accepted the U.S. offer to deploy the THAAD system in South Korea following North Korean ballistic missile tests.  The THAAD system will serve the purpose of protecting U.S. and ROK military installations and key southern sites, such as the port of Busan, which would be used to reinforce allied forces in the event of a conflict.  The threat is not imaginary; North Korea has explicitly threatened South Korea with missile attacks.  China has vociferously opposed THAAD deployment as running counter to China’s strategic interests and has been explicit that South Korea’s relationship with China will suffer if THAAD is deployed.  Along with its public condemnations, Chinese tourism to South Korea has suffered and Korean firms operating in China have been subject to harassment by government officials.

There is a public debate within South Korea regarding THAAD deployment but the smaller part of the discussion is about the cost, effectiveness, or need for the system.  Most opposition to THAAD is about whether it is unacceptably damaging relations with China.  In the past, there might have been a debate in South Korea about whether THAAD was reducing the prospects of North-South diplomacy, but Kim Jong-un’s North Korea has been so belligerent, unyielding to international sanctions, and uninterested in dialogue with Seoul that THAAD’s effect on inter-Korean relations is barely mentioned.  It is all about China.

As a matter of fortunate timing, the next ROK administration will be spared the choice of whether to introduce THAAD to the peninsula.  Its hardware has already begun arriving and deployment is well underway.  If the new government does nothing, THAAD will be ready to counter potential North Korean attacks within months.  It would require a bold decision on the part of the new government to reverse course and dismantle a system that was already in place to defend the Republic of Korea against the North Korean threat.  China is still protesting, but there are rumors that the Chinese government is internally reviewing why its tactics failed to prevent THAAD deployment and is now looking forward to get past the problem.  China would be ill-advised to begin its relationship with a new ROK administration by pressing it hard with an extremely difficult demand to meet.

That is not to say that THAAD is forever.  If U.S. and Chinese pressure succeeded in dragging North Korea to the negotiating table, and if North Korea as a result of negotiations became less threatening to South Korea, there is nothing that would prevent THAAD from being withdrawn from the peninsula.  If the military threat THAAD is designed to guard against goes away, it would not need to remain.  If China mistakenly but genuinely believes that THAAD represents an American threat to Chinese strategic interest, rather than a North Korean threat to South Korean interest, then it would be clearly in China’s interest to push North Korea in a peaceful direction.  The next South Korean government may well point that out to them.

There are other issues that the new Korean administration will need to take up with China.  On the economic front, Seoul may point out to China that THAAD-related retaliation against South Korean economic interests, including tourism, imposes costs on both sides and will chill the atmosphere for future economic cooperation.  South Korean investors may think twice about whether to put their investment into China given China’s demonstrated use of commercial leverage for political purposes.  Large South Korean firms may now also consider it wise to diversify their activity to be less dependent on the Chinese market.  Regardless of THAAD, that might be prudent.  It will be worth reviewing implementation of the 2015 ROK-China trade agreement to see if it is working as intended.  The Regional Comprehensive Partnership Agreement (RCEP), which would include both China and South Korea, is still there to be negotiated, and may have new life breathed into it by the U.S.-precipitated collapse of the Trans-Pacific Partnership.

The next South Korean administration may prefer to stay out of disputes involving China that less directly involve Korean interests, such as the South China Sea territorial issues. That may prove impossible if China’s general regional assertiveness manifests itself in ways that affect Korea, such as the illegal activities of the Chinese fishing fleet, claimed Air Defense Identification Zones, or Chinese interference in maritime freedom of navigation.  As a virtual island, because its sole land border is with North Korea, South Korea depends upon air and sea lanes, and the international rules that guarantee their free use.  It is less an immediate issue than THAAD, but the next South Korean government may find itself at odds with China regarding China’s quest to exert control over China’s periphery in ways that do not respect the sovereign interests of the countries of the region.

Mark Tokola is the Vice President of the Korea Economic Institute of America. The views expressed here are his own.

Photo from Republic of Korea’s photostream on flickr Creative Commons.

Posted in China, Economics, slider, South KoreaComments (9)

What Korea Should Learn from Treasury and Trump in the Last Week

By Kyle Ferrier

Attempting to contest rumors in Seoul that the U.S. would name Korea and/or China a currency manipulator for political reasons, last month I argued against both the possibility of such a decision and the scope of its financial impact. Thankfully, my points on the latter were not necessary.

Last Friday, the U.S. Treasury released its Semiannual Report on International Economic and Exchange Rate Policies, which did not find any trading partner to be manipulating its currency. Despite concerns that it would be influenced by political considerations, the report shows no obvious signs of interference, following the same format and methodology as previous ones. However, Trump’s separate comments on China as a manipulator before and after the report’s release send mixed signals as to whether future decisions could be politically motivated. How should Korea interpret both the report and Trump’s statements?

The first takeaway is the strength of institutional checks on the president which help to ground policies in evidenced-based decisions. Throughout his campaign, and even as late as April 2, Trump was highly critical of China’s currency policies, going so far as to call them “the greatest currency manipulators ever” and the “world champions” of currency manipulators. Yet, last Wednesday, only two days before Treasury’s report was released, Trump plainly stated “They’re not manipulators.” Trump did not publically lament that the formal process of naming a manipulator forced him to change his mind, nor is he likely to do so in the near future. However, it likely played a significant role in the recent outcome.

Treasury’s report is issued in accordance with the requirements outlined in the Trade Facilitation and Enforcement Act of 2015, which requires the department to track three criteria to gauge if a partner country is manipulating its currency: “(1) a significant bilateral trade surplus with the United States, (2) a material current account surplus, and (3) engaged in persistent one-sided intervention in the foreign exchange market.” In previous reports, Treasury has interpreted these criteria as (1) a bilateral goods trade surplus of $20 billion, (2) a current account surplus larger than 3 percent of GDP, and (3) repeated net purchases of foreign currency more than 2 percent of GDP over the previous 12 months. To name Beijing as a manipulator would have required lowering these thresholds to meet China’s current economic conditions, and to pressure them for the future would have required lowering the thresholds at least to some degree. No such changes were reflected in Treasury’s most recent report.

The role of Treasury Secretary Stephen Mnuchin as well as the broad application of the criteria across countries, making it difficult to single out a country for political reasons without negatively impacting others, likely played an important part in keeping external influence out of Treasury’s report. Though Trump has been more vocal, Mnuchin has consistently supported the established review process for possible currency manipulation. His oversight of the process and the growing influence of like-minded advisors in the administration are suggestive of Mnuchin’s sway in the report’s determination. Lowering the thresholds for Treasury’s three criteria to target China could also negatively impact other countries at risk of receiving the manipulator label, including Japan and Korea, which, as I have argued elsewhere, is not something the administration is keen on doing at this time. Furthermore, since Trump admitted China is not manipulating its currency, if Treasury were to lower these levels in the future, the insertion of political influence would be highly transparent.

The second takeaway is Trump’s preference to directly tie security and economic considerations. Although Trump stated China has not been manipulating its currency for months to support his claim last week, he implicitly contradicted himself when he tied the issue to Beijing’s support on North Korea. After Treasury’s report was released, he tweeted from his personal account: “Why would I call China a currency manipulator when they are working with us on the North Korean problem? We will see what happens!” This linkage, which comes after Chinese President Xi Jinping’s visit to Mar-A-Lago, mirrors Trump’s approach towards Japanese President Shinzo Abe, working to tackle both North Korea and the foundations for a new trade agreement. Yet, as illustrated above, the formal institutional means on international currency policy are not structured to accommodate such an approach. Though that may not stop Trump from seeking less-trodden paths to pursue the same goals.

While both takeaways certainly hold water and are not necessarily mutually exclusive for now, time will reveal the influence of each in driving Trump’s international currency policy. Is the linkage of China’s currency policy to cooperation on North Korea Trump posturing after being forced to accept Treasury’s conclusions? Is he actually able to convince Mnuchin to go after China and willing to potentially inflict collateral damage on allies in the process? Answering these questions will likely boil down to if and how the administration reacts to the Chinese approach towards North Korea over the coming months, but the stipulations of their cooperation are still unclear. What outcomes would sufficiently demonstrate China’s pressure on North Korea? How long is the administration willing to wait to see results? Perhaps cooperation will not be judged on outcomes, but on perceived efforts alone? There a number of different ways this could play out, but the one thing that seems to be assured in the near future is uncertainty.

Though much of the uncertainty surrounding currency manipulation is being driven by the U.S., Korea can certainly take steps to minimize potential challenges. The next administration in Seoul should pursue a two pronged approach. The first prong should be to increase the transparency of exchange rate interventions. Treasury has consistently encouraged Korea to publish exchange market intervention data. Doing so would allow for greater understanding on the only one of Treasury’s currency manipulation criteria Korea does not currently meet. The second prong should be elevating outreach to the U.S., including a summit with Trump as soon as possible. Trump’s anecdotes about what he has learned from meetings with foreign leaders speak volumes about the importance of getting face time with him.

Additionally, when dealing with President Trump, whoever assumes the presidency in May should note that both takeaways from the recent string of events have broader implications. Trump will likely attempt to tie together major security and economic issues in U.S.-Korea relations in an attempt to receive concessions, but may very well overplay his hand in certain areas depending on the relevant domestic institutional checks. Yet, Seoul would be wise not to venture too far from longstanding alliance norms, which could provide Trump a more sympathetic audience in Washington for any potential corrective economic measures.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Roman Boed’s photostream on flickr Creative Commons.

Posted in slider, South KoreaComments (1)

About The Peninsula

The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.