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It is a cheerful, albeit muffled, annyeong haseyo from Trade Secrets in Seoul today. Face masks are dutifully on — unlike, ahem, one of our comrades in Tokyo — as South Korea ramps up mass public testing for coronavirus and the country’s globally important exporters try to survive amid crippling production disruptions and falling demand.
Much ink has been spilled on the collateral damage of the disease on this side of the border — from the risk facing tech giant Samsung and carmaker Hyundai to the quasi-Christian apocalyptical sect blamed for the rapid outbreak here in recent weeks.
So today we are returning our attention beyond the heavily fortified border that divides the peninsula — where data show some disquieting trends for Kim Jong Un and his top cadres in Pyongyang. Our Policy Watch looks at what the UK could expect to get out of a trade deal with the US, while our chart of the day underlines how US exports have been struggling.
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What rice prices tell us about coronavirus and sanctions in North Korea
Evidence of new food shortages and higher rice prices in North Korea suggests that not only are border and internal travel restrictions — instituted to stop the virus spreading — being strictly enforced, but that international economic sanctions might be finally starting to pinch.
A disclaimer is needed at the outset: statistics surrounding North Korea are inherently troublesome. Data from Pyongyang or Beijing are not considered reliable. Even UN statistics for things like how many people are going hungry are questioned by analysts because the organisation lacks full access to the country. US economist Marcus Noland’s adage to “never trust a datum about the North Korean economy that comes with a decimal point attached” has become lore among his fellow experts.
When coronavirus swept through China in January, the leaders in North Korea — which has an extremely vulnerable health system — acted swiftly to isolate the country from the outside world.
Trade and travel restrictions led to the 1,420km border with China shut before many countries instituted similar restrictions on Chinese visitors. Even the intrepid foreign emissaries have been told to say in their Soviet-era compound in the capital, Pyongyang.
The lockdown immediately raised questions about how long North Korea could survive, shut off from its most important ally and trading partner, China.
While the currency, the North Korean won, has remained fairly stable — probably an indication of little liquidity in foreign exchange trading — evidence is emerging of food shortages and price inflation at the country’s markets, or jangmadang.
Anecdotal evidence from inside the country given to Trade Secrets suggests that even Pyongyang, the most developed city, has started to run out of some Chinese consumer products that are usually widely available, including fruit and beer.
Data published by website Daily NK, based on information supplied by North Korean sources, show rice prices increasing by as much as a third between late last year and early February.
These changes suggest a shift after several years of stability in food prices and availability of Chinese products.
They also underscore that if China had closed its border with North Korea over the past few years, in line with most of the rest of the world, sanctions might have resulted in more pressure on the North Korean economy sooner, and by extension, Kim Jong Un and his nuclear ambitions.
International health experts have called for urgent pre-emptive sanctions waivers to enable supplies to be sent to authorities in Pyongyang © Kim Won-Jin/AFP/Getty
The rice price data, analysed by Benjamin Silberstein, an expert on the North Korean economy, suggest rice prices across the country “skyrocketed” in January. But diving deeper, Silberstein notes an “increasing divergence” in prices between different North Korean cities. This, he says, signals internal travel has indeed been shut down in the war against coronavirus.
Specifically, prices in the remote area of Hyesan, which is heavily dependent on border trade with China, are starkly higher than in Pyongyang and Sinuiju, the major trading city near Dandong in north-east China.
This, according to Silberstein, suggests that “internal travel between provinces is heavily restricted and that such restrictions are implemented with some success. Otherwise, prices between markets should be far more equal since traders could go where demand is highest and supply lowest.”
For weeks it was not clear whether the virus was spreading inside North Korea, but in recent days state media has reported that as many as 7,000 people are being monitored for symptoms of coronavirus.
Tough international sanctions, which were imposed in response to Kim’s testing of long-range missiles and nuclear weapons, block almost all official international trade with North Korea, including the sale and supply of medical equipment, exacerbating the country’s vulnerability.
International health experts, with experience inside the country, have called for urgent pre-emptive sanctions waivers to enable supplies to be sent to authorities in Pyongyang. Now, it appears questions will be asked about whether similar waivers, or at least more food aid, are needed to save the economy.
Charted waters
The US manufacturing sector continued to expand in February but grew at a slower pace, as global factory closures due to the spread of coronavirus threw a wrench into supply chains.
Manufacturing was a drag on the US economy in the back half of 2019. In January factories showed signs of a recovery following a truce in the trade fight between the US and China, but the virus fallout has presented new challenges for the sector — which has grappled with Boeing’s decision to halt production of the 737 Max — together with economic weakness overseas.
Policy watch
The UK’s document outlining its negotiating objectives sets the scene for tough trade talks between London and Washington © EPA-EFE
The UK has published its long-awaited negotiating objectives as it seeks to strike a free trade agreement with the US as it leaves Europe.
The document has set out plans to boost trade for small UK businesses while insisting that British public services are “not on the table”, setting the scene for tough trade talks between London and Washington.
The UK says it will also aim to maintain standards for consumers, the environment and food production.
According to the government’s own figures, a free trade deal would deliver a 0.16 per cent boost to the UK economy over the next 15 years, while trade would be boosted by between 0.07 per cent and 0.16 per cent.
Some experts have claimed the net effect of such increased trade would be negligible compared with the loss of trade resulting from the UK leaving the EU’s single market and customs union. A cross-Whitehall study conducted in 2018 suggested that growth would be reduced by 2 per cent to 8 per cent in the same period.
Don’t miss
- Coronavirus is straining the just-in-time supply chains on which global business has come to depend, as US ports brace for cargo volumes to drop 20 per cent or more in the first quarter of 2020. Chris Connor, chief executive of the American Association of Port Authorities, predicted his members could see cargo volumes fall by a fifth in the first three months of the year and warned that the economic impact of such a crisis “can easily run into the tens of billions of dollars”. Read more
- Michael Bloomberg said he agreed with President Donald Trump pressuring China on trade and talking to North Korea and that “a lot of criticisms of Donald Trump are not his policies, it’s the way he’s doing it”.
Read more - The breakdown of China-based electronics supply chains because of coronavirus is delaying the arrival of computers and smartphones in shops, with experts warning that some companies are underestimating the impact of the disruption. Read more
Tokyo talk
The best trade stories from the Nikkei Asian Review
- Japanese, Czech and Canadian mask makers’ factories are being pressed into service by Thailand and China, which are restricting exports to prioritise domestic supply amid shortages because of the coronavirus.
Read more - Across Asia, legislators and national security officials are worried that China’s expanding market share in building and equipping regional power grids could leave their countries vulnerable.
Read more
