Making economic sanctions on North Korea work – Yasheng Huang

MIT Sloan Professor Yasheng Huang

MIT Sloan Professor Yasheng Huang

From Project Syndicate

China is the only country with the power to compel North Korea to change its nuclear policy. Convincing Chinese leaders to wield that power, by fully isolating the regime economically, must be the international community’s top priority.

Last week, in a brazen rebuff to tough new United Nations sanctions, North Korean leader Kim Jong-un’s regime fired a ballistic missile over the northern Japanese island of Hokkaido – its second launch over Japan in less than three weeks. But, far from indicating that sanctions don’t work, Kim’s move shows that they still aren’t tough enough.

The latest sanctions cap oil imports, ban textile exports, and penalize designated North Korean government entities. Following Kim’s response, sanctions should be tightened even further, to stop all trade with North Korea, including halting all fuel imports.

North Korea is one of the most insular countries in the world. That insularity is a curse for the long-suffering North Korean people, but an advantage for a sanction-based strategy, because only one country is needed to make it work: China.

From an economic perspective, China is the only country that really matters to North Korea, as it controls about 90% of the North’s foreign trade and supplies almost all of its fuel. Yet China’s economy would barely register the effect of new sanctions: North Korea’s annual GDP, at a meager $28 billion, constitutes little more than a rounding error for its giant neighbor.

The lack of viable commercial alternatives and the massive asymmetry of power between North Korea and those imposing sanctions mean that a stricter sanctions regime would push the country into a corner. The question is whether economic hardship would induce North Korea to change its nuclear policy. Though it is impossible to say for sure, a look at the economics of North Korea’s nuclear program suggests that it might.

Contrary to popular perception, nuclear arms are weapons of the poor – extraordinarily cheap compared with conventional armaments. In fact, it was this rationale that drove the Soviet Union’s massive nuclear buildup: Soviet leaders, recognizing that they could not compete with the much wealthier United States’ conventional weapons, focused their country’s limited resources on creating a potentially devastating nuclear arsenal.

Likewise, North Korea’s focus on nuclear, rather than conventional, weapons may be enabling it to minimize the tradeoff between guns and butter. Indeed, there are reports of some vitality in the North Korean economy, with markets full of goods and new buildings under construction. Tighter sanctions are therefore needed to increase the economic price that the regime must pay for its nuclear program.

Read the full post at Project Syndicate.

Yasheng Huang is the International Program Professor in Chinese Economy and Business and a Professor of Global Economics and Management at the MIT Sloan School of Management.

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