Why you should care
Because sometimes the answer is in the shadows.
This is an OZY Special Briefing, an extension of the Presidential Daily Brief. The Special Briefing tells you what you need to know about an important issue, individual or story that is making news. Each one serves up an interesting selection of facts, opinions, images and videos in order to catch you up and vault you ahead.
WHAT TO KNOW
What happened? After weeks of heated anticipation, President Donald Trump and North Korean leader Kim Jong Un ended their second summit today in Vietnam without a deal. “Sometimes you have to walk,” Trump said. The dealbreaker, he claimed, was Pyongyang’s insistence that Washington lift all its sanctions against the hermetic communist regime. Not all’s lost, though: Both sides suggested negotiations would continue, while Kim said he’d allow an American liaison office in his country. Still, the talks fell short of most expectations.
Why does it matter? For Trump, this leaves him without the major diplomatic victory — whether extracting a concrete promise from Pyongyang to denuclearize or declaring an end to the Korean War — he’d been planning. But for Kim and his long-isolated country, the consequences could be more serious. Ahead of the summit, Trump claimed North Korea could thrive like host nation Vietnam if it gave up its nuclear weapons program. Far-fetched or not, the long-impoverished nation now seems headed in the opposite direction, with U.S. sanctions set to remain in place. Amid some faint signs of change, OZY asks: What happens now to North Korea’s economy?
HOW TO THINK ABOUT IT
Still standing … Gathering accurate data on North Korea’s centrally planned economy is challenging: Observers are forced to rely on a combination of information from defectors, human rights activists and South Korean estimates. In 2015, the latter pegged North Korea’s official gross domestic product at around $40 billion, more than one-fifth of which the regime reportedly spends on its military. Two years later, the economy is believed to have contracted some 3.5 percent — its largest decline since the 1990s — thanks to tougher sanctions. Global isolation has left the regime with few options, and analysts estimate Pyongyang’s ties with Beijing account for 90 percent of its trading activity. In the absence of a robust economy, the black market has thrived, while the state relies on complex and illicit trading schemes for cash and commodities like petroleum.
… and maybe even stepping up? Curiously, though, the economy may not be doing as poorly as one might expect, according to a recent report. The North Korean currency, the won, has stood its ground against the U.S. dollar, while construction projects are chugging along in Pyongyang, where more local goods have cropped up, indicating a boost in manufacturing. Prices for rice and gasoline have remained stable or fallen. “There is no clear sign that the state is in trouble,” William Brown, a North Korea expert at Georgetown University, told The Wall Street Journal. That’s probably due to the government’s promotion of small-scale market activity in recent years, which analysts estimate provides households with more than 60 percent of their income. Today, some 400 markets are allowed to operate in exchange for paying various state fees. Still, recent visitors say, that’s the exception rather than the rule: Poverty remains widespread in North Korea, and it’s facing a food shortage this year.
Ask the hosts. North Korean officials are said to be increasingly considering Vietnam’s economic transformation as a blueprint for their own potential opening-up. Rolled out a decade after the war ended, a series of liberalization policies known as “doi moi” turned that country from an impoverished, war-torn backwater into one of Asia’s strongest economies — all without significantly reforming its one-party system. Developing an export-focused manufacturing industry was a driving factor. In North Korea, observers have pointed to the country’s abundant mineral resources, believed to be worth trillions of dollars. But it’s unclear whether a doi moi–style path would work for North Korea, which doesn’t appear as enthusiastic as Vietnam was to join the global community. What’s more, any such steps would require a degree of political reform that Pyongyang, whose ruler is still shrouded in a personality cult, probably wouldn’t accept. For now, as one report claims, North Korea remains “a responsible investor’s worst nightmare.”
Leaving the door open. Despite the summit’s failure to produce a concrete deal, some say Kim isn’t walking away completely defeated. Most prominently, the two leaders effectively agreed to keep talking. And whether or not Trump intends to, observers believe he’s further legitimized his North Korean counterpart with each meeting as a global leader. At home — where state-controlled media reportedly has been careful not to criticize Trump directly — Kim will likely benefit from that image. But whether it actually compels him to change his country’s wayward habits remains to be seen.
WHAT TO READ
Spies and Satellites: Analyzing North Korea’s Economy Isn’t Easy, by Brett Miller and Jungah Lee in Bloomberg
“Cho and his colleagues at the Bank of Korea draw on a grab bag of hard data, suppositions and guesswork that would bring despair to economists studying most countries.”
North Korea Built an Alternative Financial System Using a Shadowy Network of Traders, by Niharika Mandhana and Aruna Viswanatha in The Wall Street Journal
“The alleged scheme, which American prosecutors say has been used repeatedly in recent years, shows how North Korea has built a shadowy alternative financial system that allows it to continue doing business on the global stage.”
WHAT TO WATCH
Trump’s Full Press Conference After Kim Jong Un Summit in Vietnam
“I want to take off the sanctions so badly because I want that country to grow.”
Watch on Fox News on YouTube:
How Is North Korea Evading Sanctions?
“More than 20 North Korean ships have already been blacklisted by the U.N. for smuggling fuel. Ships conceal their activities by turning off tracking systems or masking the vessel’s true identity.”
Watch on BBC News on YouTube:
WHAT TO SAY AT THE WATERCOOLER
Local goods. Among the more curious products to have emerged from North Korea’s economy is “Neo-Viagra,” a spinoff of Pfizer’s erectile dysfunction medication. Sold for between $12 and $15 for a three-vial box, it reportedly contains roughly the same amount of active ingredient as the real thing — but it’s billed as an “herbal” treatment.