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发帖数: 38600 | 1 Under Any Analysis, It’s Insanity to have war with North Korea
Now that the possibility of a war between the US and North Korea seems just
one harshly worded tweet away, and the window of opportunity for a
diplomatic solution, as well as for the US stopping Kim Jong-Un from
obtaining a nuclear-armed ICBM closing fast, analysts have started to
analyze President Trump’s military options, what a war between the US and
North Korea would look like, and what the global economic consequences would
be. Needless to say, this is a challenging exercise due to the countless
possible scenario, event permutations and outcomes, not least because China
and Russia may also be sucked in, leading to a true world war.
“Realistically, war has to be avoided,” said John Delury, an assistant
professor of international studies at Yonsei University in South Korea. “
When you run any analysis, it’s insanity.”
Insanity or not, as Capital Economics writes in a May 17 note, while the
most important impact of a full-scale conflict on the Korean peninsula "
would be a massive loss of life" but added that there would also be
significant economic consequences. While we focus on the latter below, first
here are some big picture observations courtesy of Bloomberg, including an
analysis of whether all out war can be avoided:
Can’t the U.S. try a surgical strike?
It probably wouldn’t work well enough. North Korea’s missiles and nuclear
facilities are dispersed and hidden throughout the country’s mountainous
terrain. Failing to hit them all would leave some 10 million people in Seoul
, 38 million people in the Tokyo vicinity and tens of thousands of U.S.
military personnel in northeast Asia vulnerable to missile attacks -- with
either conventional or nuclear warheads. Even if the U.S. managed to wipe
out everything, Seoul would still be vulnerable to attacks from North Korea
’s artillery.
Why might Kim go nuclear?
“Even a limited strike” by the U.S. “would run the risk of being
understood by the North Koreans to be the beginning of a much larger strike,
and they might choose to use their nuclear weapons,” said Jeffrey Lewis,
director of the East Asia nonproliferation program at the Middlebury
Institute of International Studies. Somehow, the U.S. would need to signal
to both North Korea and China -- Pyongyang’s main ally and trading partner
-- that a surgical military strike is limited, and that they should avoid
nuclear retaliation.
Is regime change an option?
New leadership wouldn’t necessarily lead to a new way of thinking among
North Korea’s leadership. Kim’s prolonged exposure to Western values while
at school in Switzerland led some to speculate that he might opt to open
his country to the world -- until he took power and proved them wrong.
Moreover, if Kim somehow were targeted for removal, the ruling clique
surrounding him would have to go as well -- making for a very long kill list
. China, fearing both a refugee crisis and U.S. troops on its border, would
likely seek to prop up the existing regime.
Does that mean all-out war is the best U.S. option?
A full-scale invasion would be necessary to quickly take out North Korea’s
artillery as well as its missile and nuclear programs. Yet any sign of an
imminent strike -- such as a buildup of U.S. firepower, mobilization of
South Korean and Japanese militaries and the evacuation of American citizens
in the region -- could prompt North Korea to strike preemptively. China and
Russia may also be sucked in. “Realistically, war has to be avoided,”
said John Delury, an assistant professor of international studies at Yonsei
University in South Korea. “When you run any cost-benefit analysis, it’s
insanity.”
How might North Korea retaliate?
The most immediate reaction would likely be massive artillery fire on Seoul
and its surroundings. North Korean artillery installations along the border
can be activated faster than air or naval assets and larger ballistic
missiles that can target South Korean, Japanese or American bases in the
region with nuclear, chemical and biological weapons. Those countries have
ballistic-missile-defense systems in place but can’t guarantee they will
shoot down everything. Japan has begun offering advice to its citizens on
what to do in the event a missile lands near them -- essentially try to get
under ground -- and U.S. firms are marketing missile shelters. While it’s
unclear if North Korea can successfully target U.S. cities like Denver and
Chicago with a nuclear ICBM, it’s similarly unknown if U.S. defense systems
can strike it down -- adding to American anxieties.
What options remain on the table?
Many analysts say it’s time to start talks to prevent the situation from
worsening. Stopping North Korea from obtaining a thermonuclear weapon, or
more advanced solid-fuel missiles, is a goal worth pursuing, according to
Lewis. However unpalatable it may seem, that means offering rewards to
entice North Korea back to the negotiating table. Lewis suggested one reward
could be to scale back U.S.-led military drills around North Korea. The
question of what can be offered to the North Koreans “is a conversation
that should be happening both with the public, with Congress and with the
North Koreans, instead of having this imaginary conversation about war
scenarios,” said Delury. “The realistic option is a diplomatic one that
slows this thing down. And that’s going to require a lot of talks.
* * *
Assuming appeasement and containment are off the table, and a diplomatic
solution fails, what would the impact on the regional and global economy be
from a worst case scenario - one in which conventional war breaks out? Here
are the salient thoughts from Capital Economics on this increasingly
sensitive topic:
North Korea’s conventional forces, which include 700,000 men under arms and
tens of thousands of artillery pieces, would be able to cause immense
damage to the South Korean economy. If the North was able to set off a
nuclear bomb in South Korea, the consequences would be even greater. Many of
the main targets in South Korea are located close to the border with the
North. The capital, Seoul, which accounts for roughly a fifth of the country
’s population and economy, is located just 35 miles from the North Korean
border, and would be a prime target.
The experience of past military conflicts shows how big an impact wars can
have on the economy. The war in Syria has led to a 60% fall in the country’
s GDP. The most devastating military conflict since World War Two, however,
has been the Korean War (1950-53), which led to 1.2m South Korean deaths,
and saw the value of its GDP fall by over 80%.
South Korea accounts for around 2% of global economic output. A 50% fall in
South Korean GDP would directly knock 1% off global GDP. But there would
also be indirect effects to consider. The main one is the disruption it
would cause to global supply chains, which have been made more vulnerable by
the introduction of just-in-time delivery systems. Months after the Thai
floods had receded in 2011 electronics and automotive factories across the
world were still reporting shortages.
The impact of a war in Korea would be much bigger. South Korea exports three
times as many intermediate products as Thailand. 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. 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 impact of the war on the US economy would likely be significant. At its
peak in 1952, the US government was spending the equivalent of 4.2% of its
GDP fighting the Korean War. The total cost of the second Gulf War (2003)
and its aftermath has been estimated at US$1trn (5% of one year’s US GDP).
A prolonged war in Korea would significantly push up US federal debt, which
at 75% of GDP is already uncomfortably high.
Reconstruction after the war would be costly. Infrastructure, including
electricity, water, buildings, roads and ports, would need to be rebuilt.
Massive spare capacity in China’s steel, aluminium and cement industries
mean reconstruction would unlikely be inflationary, and should instead
provide a boost to global demand. The US, a key ally of South Korea, would
likely shoulder a large share of the costs. The US spent around US$170bn on
reconstruction after the most recent wars in Afghanistan and Iraq. South
Korea’s economy is roughly 30 times larger than these two economies
combined. If the US were to spend proportionally the same amount on
reconstruction in Korea as it did in Iraq and Afghanistan, it would add
another 30% of GDP to its national debt.
* * *
Finally, a look at the market impact, with the immediate attention falling
on South Korea. It has been the market's persistent refusal to even
contemplate a worst-case scenario that perplexed Goldman, as we discussed
this morning. In a note from the bank's chief credit strategist, Charles
Himmelberg said that "our sense is that investors have grown comfortable
with the view that geopolitical tensions invariably result in diplomatic
talks, in which case the right trade is to buy any dips. The result is a
market psychology that is relatively resistant to the pricing of
geopolitical risk."
As Capital Economic follows up in a daily note this morning, despite the
trading of combative statements over the past two days between the US and
North Korea, "movements so far have not been very large, and we suspect that
this will remain the case so long as military conflict is avoided."
Not surprisingly, South Korea’s stock market has been amongst the worst
affected, with the country’s Kospi index falling by just over 1%. The won
has also weakened by a similar amount against the dollar. But in context,
these moves are small. South Korea’s stock market is still about 17% higher
than it was at the start of the year, so investors are hardly panicking.
And the won is merely back to its level of four weeks ago. (See Chart 1.)
The good news for market bulls is that even if tensions escalate further
from here, CapEcon thinks that the implications for equities in South Korea
and elsewhere "will remain limited", assuming of course that war does not
actually break out. As proof, the advisory boutique shows the example of the
1962 Cuban missile crisis, when the world came closest to outright conflict
between two nuclear-armed powers, and its impact on the S&P.
Although the S&P 500 fell after US President Kennedy announced the discovery
of missiles on Cuba, it had more or less recovered its losses before Soviet
General Secretary Khrushchev announced six days later that the missiles
would be removed from the island. (See Chart 2.) And even the initial fall
was very small compared to the declines in US equities earlier that year,
which were not connected to the crisis.
One notable difference from 1962 is that back then the world's central banks
were not "all in" in the effort to keep equity markets stable, so one can
argue that it would take an even greater "shock" to the system to have an
adverse and lasting impact on stocks. In fact, stocks may even forego the
initial dip and proceed straight to the inevitable rally which central banks
will do everything in their power to unleash, even if it means making the
current bubble which now has virtually every asset manager worried, even
greater.
And then there is the worst case scenario in which war does break, and where
not even central banks can deflect the avalanche of selling. What asset
should be owned in that scenario? According to CapEcon, the best answer (our
earlier discussion about ethereum notwithstanding) may be gold:
The price of gold edged higher on Wednesday, to about $1,267 per ounce,
following President Trump’s comments that the US was ready to hit North
Korea with “fire and fury”. The Japanese yen, another safe-haven asset,
also rose on the news. That said, the moves have been small. This is perhaps
due to the fact that markets are pricing in a very low probability that the
situation will actually escalate to a full-scale war. However, there
remains huge uncertainty as to how the crisis will play out and this may
benefit gold prices over the coming weeks. Indeed, increased geopolitical
risk might even see the price rise beyond $1,350 per ounce, which hasn’t
been breached since the Brexit referendum last year. |
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