North Korea Sanctions Impact Mitigated By Illicit Trade
Image Credits: STR/AFP/Getty Images.
It is difficult to gauge the impact of the increased sanctions imposed on North Korea, with reports of both plummeting exports in the last year and increasing illicit trade of banned minerals and arms.
U.S. President Donald Trump’s “maximum pressure” strategy aims to increase sanctions on North Korea and force the Kim Jong Un government to seek relief by agreeing to give up its threatening nuclear weapons and ballistic missile program, or face increasing hardship and possible collapse from within. If sanctions fail to end the North Korean nuclear threat, the Trump administration has emphasized it is prepared to use military force, as well.
The latest U.S.-led round of sanctions at the United Nations Security Council, which were imposed in August and September of 2017, produced a total export ban on North Korea’s $3 billion coal and other mineral industries, its $800 million clothing manufacturing output, and its lucrative seafood industry, as well as cutting oil imports by a third.
China, which accounts for over 90 percent of North Korea’s total trade, reported a 37 percent drop in exports from the North in 2017 as a result of the sanctions. If fully enforced, the restrictions would cut the North’s exports by 90 percent in 2018, a loss estimated to be worth $2.3 billion. Independent media reports have confirmed significantly reduced trade and business activity in Dandong, the Chinese border city where most trade with North Korea occurs.
A number of Chinese banks have also reportedly restricted North Korea financial activities, in compliance with U.N. sanctions, which is rapidly reducing Pyongyang’s foreign currency reserves.
However, there are concerns the Chinese customs data indicating economic shortfalls is not being reflected in rapid increases in food and fuel prices, or in a steep increase in the currency exchange rate.
“If the supply and demand in foreign currency decreases due to an increase in trade deficit, the exchange rate should be higher. But it is currently not higher,” said Lim Soo-ho, a North Korea analyst with the South’s Korea Institute for International Economic Policy (KIEP.)
The current stability in prices could indicate a delayed economic effect, in that North Korea may have already sold large quantities of coal, for example, prior to the U.N. ban taking hold in September of 2017. In the coming months, as Pyongyang’s foreign currency dwindles, Lim says, inflation should increase.
There are also concerns that China, Russia and other counties are illicitly bolstering the North Korean economy through the smuggling of banned commodities, along with arms and chemical weapons sales, and cyber attacks.
Portions of a confidential United Nations report that was recently made public said North Korea earned close to $200 million from exporting coal and other banned commodities last year by using false documents and complicit foreign companies in China, Malaysia, Russia and Vietnam.
While Beijing and Moscow voted in favor of imposing tough sanctions on North Korea in the Security Council, both also want to maintain economic and political stability on the Korean Peninsula, and have called for increased negotiations to peacefully resolve the nuclear stand-off.
There have been reports that Russia is becoming a new transit hub for banned North Korean coal to compensate for the export ban in China. Moscow and Pyongyang have denied these illicit coal trade accusations. Even if true, Russia accounts for only 2 percent of North Korea’s trade.
“Even if such illegal activities continue, I think it is difficult to have a significant influence considering the size of trade between Russia and North Korea,” said KIEP economic analyst Lim Soo-ho,