◎ Any “backsliding” by North Korea at this stage would be counterproductive for Kim Jong Un as it would likely cause the U.S. to redouble its focus on resolving trade with China.
Developments in recent weeks point towards a stalemate in the denuclearization of North Korea. We look at what the stalemate might mean for the trade conflict between the United States and China.
The backdrop:
Feb. 27-28: U.S. President Donald Trump and North Korean leader Kim Jong Un meet in Hanoi. On the second day, the White House announced that the summit was cut short and no agreement was reached.
During a press conference, Trump said that he is “always prepared to walk” away from a trade deal with China.
In the month of March, several news outlets have reported that Chinese officials are afraid of scheduling a meeting between Xi Jinping and Trump that could potentially leave Xi embarrassed by the latter’s unpredictability. Meanwhile, the media grapevine has thrown up a period stretching from as early as late March to as late as June where a Xi-Trump meeting could be held to finalize a Sino-U.S. trade deal.
March 4: The U.S. and South Korean militaries commence nine days of lower-level drills, codenamed “Alliance.” In a tweet, Trump said that he was canceling large-scale drills between both nations to save money and reduce tensions with North Korea.
March 6: According to a United Nations report, North Korean food production in 2018 dropped 9 percent from 2017 to 4.95 million metric tons, the lowest level for over a decade. The report also noted that an estimated 11 million North Koreans (44 percent of the country’s population) are undernourished.
March 7: Commercial satellite images show that North Korea was rebuilding its Sohae Satellite Launching Station, according to various Western media reports. The missile launching facility was previously partially dismantled due to Kim’s promise to Trump at their first submit.
March 10: According to the Chinese language edition of Daily NK, the powerful Party committees and public security bureaus in the province of South Pyongan are seeing serious food shortages. “For the first time ever, attendance rates have dropped below 70 percent,” a South Pyongan source told the Daily NK.
March 12: U.S. Trade Representative Robert Lighthizer said during a U.S. Senate Finance Committee hearing that “our hope is we are in the final weeks of having an agreement,” but major issues remain. “If those issues are not resolved in favor of the United States, we won’t have a deal,” he said.
Also, Lighthizer and U.S. Treasury Secretary Steven Mnuchin discussed the text of the trade agreement with Chinese vice premier Liu He over the phone.
March 13: Senior U.S. defense officials told the Washington Post that the U.S. military plans to test cruise missiles previously banned under the Intermediate Range Nuclear Forces Treaty. America withdrew the U.S. from the treaty on Feb. 1, citing Russia’s violations.
Meanwhile, the U.S., U.K., and Japan commence anti-submarine drills in the Western Pacific.
March 14: During a press conference, North Korean vice foreign minister Choe Son Hui blamed the U.S. for the collapse of the second Trump-Kim summit.
“I want to make it clear that the gangster-like stand of the U.S. will eventually put the situation in danger,” Choe said. However, she added that “personal relations between the two supreme leaders are still good and the chemistry is mysteriously wonderful.”
Meanwhile, Trump told reporters at the White House that, “We’ll have news on China. Probably one way or the other, we’re going to know over the next three to four weeks.”
Also on the same day, Lighthizer and Mnuchin again spoke with Liu He about trade issues in a phone call and made “further substantial progress,” according to a Xinhua report.
Our take:
1. If reports of a food crisis in North Korea are accurate, then the DPRK regime is likely unstable now and may not be able to weather further economic sanctions.
We believe that chances of North Korea testing another missile or provoking similar levels of antagonism with the U.S. are very slim. Rather, North Korea is more likely trying to play “hard to get” to woo America back to the negotiation table.
We wrote last year that “negotiations with the DPRK are bound to see ‘setbacks’ and ‘false steps” given the nature of the regime.”
2. Last August, President Trump announced on Twitter that he was canceling Secretary of State Mike Pompeo’s scheduled trip to North Korea due to insufficient progress on denuclearization. Trump wrote that Pompeo was looking forward to visiting Pyongyang “most likely after our Trading relationship with China is resolved.” While North Korea “caved” and negotiations resumed, the Trump administration had telegraphed the message that it would prioritize tackling Beijing over Pyongyang.
With China and the U.S. in the final weeks of trade talks, Washington presently does not appear to be in a hurry to negotiate with North Korea. Put another way, there may not be significant progress in the denuclearization of the Korean Peninsula before a Sino-U.S. trade deal is signed. Any “backsliding” by North Korea at this stage would be counterproductive for Kim Jong Un as it would likely cause the U.S. to redouble its focus on resolving trade with China.
As North Korea’s economy worsens and food problems escalate, the DPRK would likely look towards China for help. This in turn creates a dilemma for the Chinese Communist Party—help its communist brother and risk being found out by America, or risk alienating the DPRK and pushing the North Korean regime into America’s orbit.
Going forward, we believe that the U.S. and North Korea will likely continue to communicate and work towards denuclearization.
3. Based on publicly available information about communications between Chinese vice premier Liu He and U.S. Trade Representative Robert Lighthizer, there is a chance that a framework agreement has been reached and both sides are now hammering out the specific details of a Sino-U.S. trade deal.
While the U.S. and China appear to be tight-lipped on negotiations, both sides also seem to be leaking out certain bits of information to the public to pressure the other side into cutting a final deal. At present, America has an advantage in the trade talks.
