Earlier today, in the course of documenting the latest out of North Korea, where Kim is apparently busy trying to figure out if he can jerry-rig one of his homemade H-bombs to one of his homemade ICBMs with masking tape and Elmer’s glue, we noted that the last resort (short of war) may be to simply cut off the North’s oil supply.
Either that, or simply stop trading with anyone who deals with Pyongyang.
Here are some excerpts from a BofAML note we cited:
NK’s trade data are very useful for understanding the geopolitical outlook for the region. As Chart 1 suggests, repeated sanctions since 2006 have not curbed NK trade. Rather, they have simply shifted flows to China, which now accounts for about 90% of NK trade. Of course, there is likely a lot of unreported trade, but given China and NK’s long border, most unreported trade is also probably with China. Note that data on the price of rice and the black market value of the NK Won also suggest sanctions have yet to impose significant pain (Chart 2).
Finally, note that trade is vital to NK since it accounts for 20% of GDP and NK imports virtually all of its oil. In our view, this suggests three things. First, it is not necessarily true that sanctions “don’t work” since tough sanctions have never been attempted. Second, given Korea’s dependence on trade for oil and other vital products, a shutdown of trade would cause a severe recession once inventories are run down. Third, the key to making sanctions work is full cooperation from China.
Well sure enough, it looks like Trump is going to go “nuclear” – only not that kind of nuclear. To wit:
In other words: Washington is going to force Beijing to put a stop to this. Because obviously, what Trump is suggesting there simply isn’t tenable for China. That choice isn’t a choice.
You’re reminded that this is a politically-sensitive time for the Chinese ahead of the Party Congress.
Your move Xi. Maybe Trump can bribe him with some more chocolate cake.