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Addressing North Korea’s Other Weapon: A Growing Economy

Despite crippling sanctions, the North Korean economy has managed to continue its economic growth over the past several years. As the United States and its allies formulate economic and foreign policy strategies to address North Korea’s threats, Washington must focus on straining its economy without intensifying the current security climate.

Image courtesy of David Stanley, © 2010.

In response to North Korea’s nuclear tests, the United Nations passed a number of sanctions aimed at limiting its trade and economic activities, beginning in 2006. Despite such sanctions, North Korea’s economy has maintained a robust economic performance. Driven by buoyant agricultural and mining output, the country’s economy grew by 3.9 percent in 2016, comprising its best economic performance in the last 17 years. However, despite its recent economic performance, North Korea lags far behind South Korea, where per capita income is around 17.4 times higher than that of North Korea, which remains a meagre $1,800.

Central to North Korea’s economic growth is its foreign trade, which continues to increase in spite of UN sanctions. As an exporter of minerals and textiles, and importer of oil and electronics, North Korea saw its foreign trade volume increase by 49.7 percent from 2010 to 2015, growing from $4.18 billion to $6.25 billion. Notwithstanding North Korea’s image as an economically insular country, foreign trade now accounts for around 22 percent of the country’s gross domestic product, a level that is similar to that of Brazil. Unsurprisingly, China is North Korea’s largest trading partner, accounting for 85 percent of North Korea’s imports and 93 percent of its exports. Apart from China—India, Russia, and Thailand count amongst the top importers—while India, Pakistan, Burkina Faso, and Mexico rank among the top exporters of goods and services to North Korea.

In response to the recent nuclear tests, the Trump administration is considering “stopping all trade” with countries doing business with North Korea.” Yet, North Korea and the United States have a significant overlap in international economic relations. China is the biggest trading partner of both North Korea and the United States. When combined, China, Brazil, India, Mexico and Germany—all of which has some trading relations with North Korea—account for over one-third of the total US trade volume. Given this significant overlap, stopping all trade with countries doing business with North Korea would have significant economic costs for the United States and average Americans, and is therefore hardly a viable option.

Because stopping trading relations with North Korea’s trading partners is impractical, the United States should instead increase pressure on the aforementioned countries to place sanctions on companies that trade with North Korea. However, this is a move that Washington must navigate carefully, especially with Beijing, which is increasingly worried that any deterioration in North Korea’s economic condition might aggravate Pyongyang and make its behaviour even more unpredictable. Given the delicate positioning between Washington, Seoul, and Beijing, any worsening of relations between the three countries on North Korea is a proposition that Washington can ill-afford.

Apart from North Korea’s economic relations with countries in the Asia Pacific, Washington would also do well to pay attention to Africa, where North Korea’s economic and military engagements are on the rise. In 2015, North Korea traded goods with 30 countries across Africa. While these countries include Senegal and Guinea, which import frozen and fresh fish from North Korea, it also includes countries like Congo, where the police and presidential guards import contraband arms and ammunitions and receive military training from North Korea. Therefore, although African countries account only for a fraction of North Korea’s total trading volume, the nature of the trading relations—involving the export of arms to several African countries—should make Africa a key part of the overall economic and diplomatic strategies to weaken North Korea’s international engagement.

Weakening this growing source of revenue would not only weaken its finances, but also the soft power and diplomatic standing of North Korea, which seeks to strengthen its international economic relations with African countries in order to avoid a complete diplomatic isolation. To this end, South Korea’s recent action is instructive: it used investments as a tool to convince Uganda, a historically close ally of North Korea, to cease its military cooperation with the latter. The use of such economic incentives should inform US policy to steer countries—in Africa and the Asia Pacific—away from their economic and military relations with North Korea.

Given North Korea’s growing economy and its burgeoning international economic relations, Washington must pay attention to weakening North Korea’s standing in the global economy without jeopardizing the economic interests of the United States and its ordinary citizens. Offering incentives to North Korea’s allies in the Asia Pacific and Africa to cease its trading relations with the country would be a good first step in that direction.


Ryan Nabil

Ryan is a global macroeconomy researcher. His articles have appeared in the Washington Post, US News & World Report, and the National Review. Ryan is a graduate of Kenyon College and Oxford University.
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