North Korea’s latest nuclear test -- its sixth and reportedly most powerful yet -- has yet to impact the global and Korean economy as much as it has ratcheted up geopolitical tensions. Yet, that should not offer any basis for optimism.
Most of all, the crisis is certain to move in a different direction than in the past, in which a fresh provocation by the North struck the stock and financial markets only temporarily.
What distinguishes this crisis from those in the past is that the latest nuclear blast, which followed the North’s successful test of two intercontinental ballistic missiles, brought the erratic regime in Pyongyang close to gaining the capability to hit the US mainland with a nuclear-tipped missile.
With the North close to the “red line,” it is certain -- and imperative -- that the international community, and specifically the US, take a different approach this time. Talk of military actions and maximum pressure and sanctions, including cutting off the North’s oil supply and a secondary boycott, is already flourishing in Washington and New York.
It is easy to foresee how North Korean leader Kim Jong-un will react: He will most likely make further provocations, such as new nuclear or missile tests. Reports already point to the possibility of the North firing an ICBM into the Pacific Ocean on its Day of the Foundation of the Republic holiday Saturday.
This means the crisis will only worsen for a considerable period of time and the global and Korean economy will have to brace for the North Korea risk.
The US push for a secondary boycott option for North Korea alone could have huge impact on the global and Korean economy as it is certain to increase tension between the US and China, which could lead to a trade war between the two superpowers.
US President Donald Trump, who had often tied China’s role in reining in the North to Washington’s possible initiation of trade war with Beijing, has already hinted at pushing for secondary boycott for North Korea after the Sunday’s nuclear test. He said that the United States is considering halting trade with “any country doing business with North Korea.”
Chinese Foreign Ministry spokesman promptly said that Trump’s threat to cut off trade with countries that deal with North Korea is “unacceptable and unfair.”
From the Korean perspective, deepening of conflict between the US and China would make it difficult for South Korea to restore its relations with Beijing which have become strained by its decision to host a US missile shield system against the North’s missile threats.
China’s retaliatory measures -- including discriminative punishments of Korean businesses and a ban on group tours to Korea -- have already caused huge losses to companies like Lotte and Hyundai Motor.
Adding to the risk factor of the Korean economy is, ironically, Trump’s threat to terminate the 5-year-old Korea-US free trade agreement. Trump, who has often expressed frustration with the trade pact, gave such an indication before North Korea conducted the latest nuclear test.
It has yet to be seen how the nuclear test -- which calls upon the allies to have a united front -- will affect his avowed plan to discuss with his advisers the notion to “weigh a possible withdrawal” from the pact. But what is certain is that the Trump administration will at least seek to change the agreement in a way less favorable to Korea.
All these external risks come at a time when the Korean economy is already facing uncertainties. The gross domestic product growth rate, which registered 1.1 percent in the first quarter of this year, nosedived to 0.6 percent in the second quarter as the economic recovery lost ground.
Deputy Prime Minister and Finance Minister Kim Dong-yeon correctly said the North Korea crisis has become a global issue and it will not be easily resolved anytime soon. Policymakers, businesses and other key players of the economy should be ready to brace for all scenarios and contingencies.