The North Korean Summit: Part II

Last week,1 we discussed the six major nations involved in the North Korean issue and each country’s geopolitical goals, constraints and meeting positions for the recently proposed summit between the U.S. and North Korea. This week, we will examine why the talks are being proposed now and offer reasons why they may fail or succeed. We will summarize the costs and benefits of the summit meeting and conclude with market ramifications.

How did this happen?

The key figure in setting up this meeting was South Korean President Moon Jae-in. Since his election last May, Moon has been working furiously to prevent a war on the Korean Peninsula. When he took office, the U.S. was steadily ratcheting up pressure on North Korea, adding sanctions and using military intimidation. The Kim regime was testing missiles and conducted what appeared to be a thermonuclear device test on September 3, 2017. The U.S. and North Korea appeared to be careening toward war.

Moon comes from a political tradition of pushing for unification through improving relations with the North. Previous left-wing governments in South Korea have run afoul of U.S. policy toward North Korea but Moon seems to have avoided this problem. He defended South Korean sovereignty by insisting that no war could occur on the peninsula without South Korean acquiescence. At the same time, he supported sanctions against the Kim regime and didn’t push for removal of the THAAD anti-missile system advocated by the U.S.

Perhaps his most well-executed policy was to avoid criticism of the Trump administration and, at times, praise it for its sanctions policy. Moon refrained from responding negatively when Trump accused Moon of “appeasement” last September. Moon has decided that direct opposition to American policy is counterproductive as that approach has been the downfall of previous leftist governments.

The Olympics offered Moon a rare opportunity to improve relations with the North. Kim likely realized South Korea would be fearful that the North would implement some kind of attack on the games, which would embarrass the South and perhaps lead to a military confrontation. Instead, Kim offered to send a delegation to the games and even participate. Moon seized the opportunity and accepted Kim’s proposal. The Korean hockey team comprised athletes from both nations and all Korean athletes walked together at the opening ceremony under a unified flag.

The U.S. sent VP Pence to the opening games. He studiously avoided any contact with the North Korean delegation and maintained a stony presence. This was considered an inappropriate response.2 At the closing ceremony, the president dispatched his daughter who presented a warmer presence.3