North Korea tensions could escalate protectionism warn economists

The ongoing tension between North Korea, its neighbouring states and the US may well have the world’s population worried about nuclear war but it could also trigger an increase in aggressive protectionism in the region according to researchers from Wall Street bank Morgan Stanley. The tension was ratcheted up on Tuesday when North Korea fired a ballistic missile over Japan, the most aggressive move towards both Japan and the US in recent years and a step that has not been taken by North Korea since 1998. It also forced the Japanese government to tell residents of its second largest island, Hokkaido, to take cover. The incident also caused the stock market to plunge and the gold market to rise, typical reactions to fears of global uncertainty, underlining the link between global diplomacy and global economics as highlighted by Morgan Stanley. "As policymakers strive to find a lasting solution to the uneasy equilibrium, a relevant and important risk to watch is how geopolitics may spill over to trade if the US undertakes protectionist measures to get China to exert influence on North Korea," the team wrote. "Aggressive protectionism would not only have implications on China but also on the rest of the Asia region, given the regional production supply chain." The tensions have centred on a series of threats made by both Kim Jong-un and Donald Trump, the respective leaders of North Korea and the US. North Korea has engaged in a series of provocative missile launches in the last few months. Meanwhile the US has responded by warning the North Korean leader, albeit in two different tones. US Secretary of State Rex Tillerson told Fox News that “We’re going to continue our peaceful pressure campaign as I have described it, working with allies, working with China as well to see if we can bring the regime in Pyongyang to the negotiating table.” Meanwhile US president Donald Trump has threatened Kim Jong-Un with “fire and fury like the world has never seen”. The incendiary language coming from both sides has led economists to also consider the economic impact of a possible nuclear war. The Financial Times reported the views of Capital Economics, a London-based macroeconomic research firm: "In particular, South Korea is the biggest producer of liquid crystal displays in the world (40% of the global total) and the second biggest of semiconductors (17% market share). It is also a key automotive manufacturer and home to the world's three biggest shipbuilders," Capital Economics' team of Gareth Leather and Krystal Tan wrote. "If South Korean production was badly damaged by a war there would be shortages across the world. The disruption would last for some time — it takes around two years to build a semi-conductor factory from scratch." The Morgan Stanley research report also considered the feasibility of the hostilities turning nuclear, outlining three possible scenarios – one of maintaining a “status quo of uneasy equilibrium” and a second described as “peak escalation and disorderly resolution”. The third and most likely scenario it describes is the de-escalation of tensions with North Korea whereby it agrees to “a sustained effort to denuclearise, in exchange for significant economic concessions and, potentially, assurances of regime continuity.” The denuclearisation, economic liberalisation and conformity to international norms would be a deal similar to that struck in 2015 between Iran and various international stakeholders,” stated the report.

North Korea tensions could escalate protectionism warn economists

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