By John Burton
The possibility of a conflict on the Korean peninsula is a scary proposition. But as The Economist recently pointed out, global financial markets don't seem bothered by the prospect. That may be because the markets are discounting the likelihood that war will ever break out, with the threats from Pyongyang and Washington seen as lacking credibility.
The case for complacency rests on the assumption that the U.S. would not want to launch a preventive war against North Korea because it would lead to the deaths of millions, including thousands of U.S. soldiers. But some have also pointed out the adverse global economic impact of a second Korean war.
For example, a recent analysis by BMI Research, a sister unit of the Fitch credit rating agency, concluded that a war would have huge economic ramifications around the world because of the vital role that Northeast Asia plays in the international supply chain. Korea alone produces 40 percent of the world's liquid crystal displays and 17 percent of its semiconductors. If a war dragged in Japan and China, the consequences would be disastrous.
Start with the impact of a war on the Korean economy. The greater Seoul metropolitan areas would likely be at the center of the fighting, either becoming the target of artillery attacks or an attempt by North Korea to capture the city. The greater Seoul region accounts for 45 percent of Korean gross domestic product and the resulting destruction and the large death toll among civilians would lead to severe economic disruption.
North Korean missile attacks on Korea's industrial heartland in the southeastern part of the country cannot be ruled out. But even if they were spared, the greater Seoul region alone accounts for around 0.8% of global GDP, equivalent in size to the annual output of Switzerland.
Any widespread damage to Korean industry and infrastructure would affect global supply chains since Korea produces key components in the electronics and auto sectors for global customers, particularly in the U.S. and China. The resulting gap in the international supply chain would cause global inflation to rise and likely end the prolonged growth in the value of financial assets over the last decade.
The destruction of Korea would cause a loss of a major export market for China, the U.S. and Japan as well as energy and commodity producers in the Middle East, Southeast Asia and Australia. It would also force Korean companies to cut back on overseas investments, mainly in U.S., China and Southeast Asia.
While the conflict raged, shipping routes in Northeast Asia would be disrupted and affect global trade since the ports in Korea, China and Japan are among the busiest in the world.
Nonetheless, some countries would benefit in the longer term from a Korean conflict. If the Korean shipbuilding industry was destroyed, for example, this would result in new orders for Chinese and Japanese shipyards. Semiconductor foundries in the U.S. and Europe could cover the loss of Korean production, while Korean electronics components would still function in plants located elsewhere in Asia or the U.S. The output of Korean car companies would continue since more than half of Korean auto production is overseas, although they will likely have to rely more on foreign supplied components.
But the global economic impact would be much worse if a Korean conflict escalated, for example by triggering a clash between China and the U.S. or if North Korea launched missiles against Japan, including possibly nuclear ones. That could transform what would initially begin as a conventional war into a nuclear exchange, with the U.S. using nuclear bombs against North Korea. This would further hamper any reconstruction of cities, industries and infrastructure on the Korean peninsula.
Even in a best-case scenario of a rapid collapse of the Pyongyang government and the occupation of North Korea by U.S. and South Korean troops, it could trigger an insurgency by diehard supporters of the Kim Jong-un regime, delaying the recovery of the country.
The economic argument would appear to be a convincing one to persuade U.S. President Donald Trump from attacking North Korea since he would not want to be blamed for triggering a possible global depression. After all, he knows as a businessman that continued economic growth would be the surest guarantee for him to win a second term in office.
But similar arguments were made on the eve of the World War I when the economies of Europe were closely intertwined, none more so than between Britain and Germany. That war showed that the rise of populism and nationalism can make it difficult for leaders to avoid going to war if maintaining the peace makes them look weak. That is another factor that seems to preoccupy Trump.
John Burton, a former Korea correspondent for the Financial Times, is now a Washington, D.C.-based journalist and consultant. He can be reached at johnburtonft@yahoo.com.
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The case for complacency rests on the assumption that the U.S. would not want to launch a preventive war against North Korea because it would lead to the deaths of millions, including thousands of U.S. soldiers. But some have also pointed out the adverse global economic impact of a second Korean war.
For example, a recent analysis by BMI Research, a sister unit of the Fitch credit rating agency, concluded that a war would have huge economic ramifications around the world because of the vital role that Northeast Asia plays in the international supply chain. Korea alone produces 40 percent of the world's liquid crystal displays and 17 percent of its semiconductors. If a war dragged in Japan and China, the consequences would be disastrous.
Start with the impact of a war on the Korean economy. The greater Seoul metropolitan areas would likely be at the center of the fighting, either becoming the target of artillery attacks or an attempt by North Korea to capture the city. The greater Seoul region accounts for 45 percent of Korean gross domestic product and the resulting destruction and the large death toll among civilians would lead to severe economic disruption.
North Korean missile attacks on Korea's industrial heartland in the southeastern part of the country cannot be ruled out. But even if they were spared, the greater Seoul region alone accounts for around 0.8% of global GDP, equivalent in size to the annual output of Switzerland.
Any widespread damage to Korean industry and infrastructure would affect global supply chains since Korea produces key components in the electronics and auto sectors for global customers, particularly in the U.S. and China. The resulting gap in the international supply chain would cause global inflation to rise and likely end the prolonged growth in the value of financial assets over the last decade.
The destruction of Korea would cause a loss of a major export market for China, the U.S. and Japan as well as energy and commodity producers in the Middle East, Southeast Asia and Australia. It would also force Korean companies to cut back on overseas investments, mainly in U.S., China and Southeast Asia.
While the conflict raged, shipping routes in Northeast Asia would be disrupted and affect global trade since the ports in Korea, China and Japan are among the busiest in the world.
Nonetheless, some countries would benefit in the longer term from a Korean conflict. If the Korean shipbuilding industry was destroyed, for example, this would result in new orders for Chinese and Japanese shipyards. Semiconductor foundries in the U.S. and Europe could cover the loss of Korean production, while Korean electronics components would still function in plants located elsewhere in Asia or the U.S. The output of Korean car companies would continue since more than half of Korean auto production is overseas, although they will likely have to rely more on foreign supplied components.
But the global economic impact would be much worse if a Korean conflict escalated, for example by triggering a clash between China and the U.S. or if North Korea launched missiles against Japan, including possibly nuclear ones. That could transform what would initially begin as a conventional war into a nuclear exchange, with the U.S. using nuclear bombs against North Korea. This would further hamper any reconstruction of cities, industries and infrastructure on the Korean peninsula.
Even in a best-case scenario of a rapid collapse of the Pyongyang government and the occupation of North Korea by U.S. and South Korean troops, it could trigger an insurgency by diehard supporters of the Kim Jong-un regime, delaying the recovery of the country.
The economic argument would appear to be a convincing one to persuade U.S. President Donald Trump from attacking North Korea since he would not want to be blamed for triggering a possible global depression. After all, he knows as a businessman that continued economic growth would be the surest guarantee for him to win a second term in office.
But similar arguments were made on the eve of the World War I when the economies of Europe were closely intertwined, none more so than between Britain and Germany. That war showed that the rise of populism and nationalism can make it difficult for leaders to avoid going to war if maintaining the peace makes them look weak. That is another factor that seems to preoccupy Trump.
John Burton, a former Korea correspondent for the Financial Times, is now a Washington, D.C.-based journalist and consultant. He can be reached at johnburtonft@yahoo.com.
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