Early returns show North Korea sanctions hold promise

The Trump administration is betting a great deal on the effectiveness of sanctions on North Korea. Its policy of “maximum pressure” in order to get North Korea to denuclearize rests on wide-ranging economic sanctions.

Some elements of the administration — notably the president and National Security Advisor H.R. McMaster — try to spice up this policy with reference to some unspecified future military action (“phase two” of the U.S. effort) but in operational terms, it is relying now on sanctions to end North Korea’s nuclear and missile program.

{mosads}Is the approach working? The short answer is that economic sanctions are causing real damage to North Korea’s economy now. But, we won’t know if that will matter in terms of U.S. policy goals for a long time — time the Trump administration may not believe we have. 

The clock only started in 2016

While the U.S. has sanctioned North Korea for decades and the U.N. Security Council (UNSC) has had Pyongyang under sanctions for a dozen years, a serious effort to inflict economic pain on North Korea only began in 2016. Prior to that year, U.N. sanctions were quite targeted in nature.

They focused on denying the entities responsible for nuclear weapons and ballistic missile development the materiel and technology they needed to make progress through bans on imports of nuclear and missile related goods, as well as to deny them hard currency by banning exports of weapons and ballistic missiles.

The intent was to cause pain to those responsible for the threat to peace and security while leaving the general population of North Korea undamaged.

Starting with the passage of U.N. Security Council Resolution 2270 in March 2016, the UNSC began to target the overall economy of North Korea. A series of increasingly tight UNSC resolutions in 2017 essentially banned over 75 percent of North Korea’s exports and have constrained its energy imports.

Now, the intent of sanctions is to do so much economic damage that the North Korean leadership will be faced with the choice of acquiescing to U.S. and U.N. demands or collapsing economically. South Korea, Japan and the U.S. promulgated national sanctions that go even farther down this path.

The Trump administration can take credit for greatly toughening U.N. sanctions. In addition, it has been rather skillful at using the threat of U.S. financial sanctions or aid reductions to send a chill through North Korea’s trade partners.

But, this is a very new sanctions regime. With economic sanctions, the economic results of steps you take today frequently don’t appear for months or even years. It is only after those economic impacts become apparent that you can expect political leaders under the sanctions to react. 

Damage is being done

The first returns on this broad sanctions campaign are in. North Korea’s exports are plunging. Due to the collapse of the North Korea-South Korea economic relationship, the North’s exports fell from $4.152 billion in 2015 to around $3.0 billion in 2016.

With the tightening of U.N. sanctions in 2017, they dropped even further. This was almost entirely attributable to the termination of Chinese imports of minerals. China is North Korea’s last significant foreign trade partner.

According to the South Korean Ministry of Unification, North Korean exports to China fell from $3.4 billion in 2016 to $1.7 billion in 2017 with the bulk of the decline coming in the final quarter of the year. We can, thus, expect even worse results for North Korean exports this year.

Since North Korean imports, so far, are not declining at a similar pace, the DPRK is running a very large trade deficit. At some point, it will almost certainly face a shortage of hard currency, difficulties shoring up its national currency and in paying for essential imports like oil.

But, we don’t know enough about North Korean foreign exchange holdings or government finances to know when this crisis might happen. It could happen fast or it might take years, especially if the regime squeezes the general population and diverts all remaining economic resources for its purposes.   

Time

Given time, there is a chance North Korea will be hurt enough economically to have to consider some policy change to get sanctions relief. But what we don’t know is worrisome: 

• We don’t know when this will happen.
• We don’t know what the regime will think is a sensible policy change. (Give up the nukes? String along the U.S. and South Korea with sweet talk? Threaten to use nukes or sell them if we, Seoul and Tokyo don’t relent?)
• We also don’t know what President Trump’s timeline is. He and the national security advisor keep hinting that they would act militarily before North Korea has a demonstrated ability to deliver a nuclear weapon to the U.S. mainland. If so, North Korea’s weapons development timeline may be faster than sanctions can work.

If we can hold the line on sanctions and avoid leaping into a catastrophic war, we should at some point begin seeing signs of economic distress in regime actions (hard currency seizures, measures to halt imports, patriotic campaigns to make people do more with less and actions to shore up the currency.)

Perhaps the recent North Korea offer to halt testing while talking to the U.S. is an early indicator. If so, we should not be afraid to use diplomacy to reach a deal while we have sanctions leverage.

Joseph M. DeThomas is a professor of practice in the School of International Affairs at Pennsylvania State University. He served as U.S. ambassador to Estonia from 2001 to 2004. He is a contributing author to 38 North, a website devoted to informed analysis on North Korea, run by the US-Korea Institute at the School of Advanced International Studies at Johns Hopkins University.