President Trump’s talks in Hanoi with North Korean leader Kim Jong Un were expected to produce at least symbolic results. There was talk of a declaration to finally end the Korean War almost seven decades later, the potential for opening liaison offices between the two nations, even the opportunity for cultural exchanges like art or musical troupes.
But in the end, the deal collapsed in a dispute over something far less romantic: money.
A long-running dispute about the U.S.-led economic sanctions on North Korea is what broke down talks, the president later told reporters in Hanoi. “It was about the sanctions,” Trump said. “Basically, they wanted the sanctions lifted in their entirety, and we couldn’t do that."
The breakdown in talks raises an old question again: How much are U.S.-led sanctions hurting the North Korean economy? Due to a paucity of information, it’s hard to say for sure — but things don’t exactly look good.
North Korea has publicly rejected the idea that the “maximum pressure” sanctions pushed by the Trump administration are what led the country to move away from testing nuclear weapons and ballistic missiles and instead negotiate with the American administration.
Nuclear negotiator Kim Yong Chol told Secretary of State Mike Pompeo in May that Pyongyang’s shift away from weapons was “not a result of sanctions that have been imposed from outside.”
But the failure of this week’s talks in Hanoi suggests sanctions are a bigger deal than North Korea lets on in public. Indeed, there’s some evidence these sanctions may have had a substantial effect on the North Korean economy.
Kim himself seemed to admit so in a televised address on New Year’s Eve at the start of 2018, praising his countrymen for dealing with the “difficult living conditions caused by life-threatening sanctions and blockade.”
Last July, the Seoul-based Bank of Korea estimated the North Korean economy had seen its biggest decline in two decades, with the country’s real annual gross domestic product falling by 3.5 percent in 2017. Notably, the Bank of Korea estimated North Korea’s exports declined 37.2 percent in a single year.
Measuring economic activity in North Korea is a difficult process — the Bank of Korea is forced to rely on things like satellite imagery to make its estimates — and experts often have disputed over how to interpret what limited data there is. Not all estimates have been so negative, with some suggestions that North Korea’s illicit economic activity may be helping to keep the economy stable despite sanctions.
Benjamin Katzeff Silberstein, a nonresident fellow at the Stimson Center in Washington, recently published an overview of North Korea’s economy ahead of the Hanoi summit. Looking at things like gasoline prices and the exchange rate for the North Korean won using data compiled by DailyNK, a Seoul-based news service with contacts inside North Korea, Katzeff Silberstein came to a conclusion that was negative, though not apocalyptic.
There is “no sense of widespread, general crisis is visible in the data,” Katzeff Silberstein wrote, but “the regime is likely under a great deal of stress concerning the economy.”
Earlier this month a memo written by Kim Song, North Korea’s ambassador to the United Nations, which was leaked to NBC News, claimed “barbaric and inhuman” sanctions were contributing to a food crisis in the country. The letter may have been part of a pre-Hanoi negotiating tactic, but it fits with other estimates that have suggested a combination of factors to produce a food shortage in the country.
Though North Korea has been under various forms of sanctions since 2006, things changed when the U.N. Security Council began imposing tough new sanctions from 2016 onward. Crucially, Beijing and Moscow came on board with these new multilateral measures, cutting off crucial markets in which North Korea could earn money for exports or labor.
“The sharp decline in North Korea’s exports last year is a direct effect of the sanctions,” Kim Byung-yeon, an expert on the North Korean economy at Seoul National University, told The Washington Post last year. “The sanctions imposed by China last year, the biggest export destination of North Korean products, dealt a huge blow.”
Whatever their effect on North Korea’s current economy, these sanctions certainly bode poorly for the country’s economic future. It is facing a major trade deficit with China, which could ultimately create a balance-of-payment crisis. Though there is plenty of good will between North Korea and South Korea for economic engagement, unless there is sanctions relief these plans won’t go anywhere.
Unfortunately for Kim, he’s dealing with a U.S. administration that likes to sanction a lot — the Trump-era has seen more targeted sanctions imposed per year than under any previous presidency. The U.S. president may face opposition from Congress on removing U.S. unilateral sanctions and may worry that once U.N. Security Council sanctions are removed, they could never be put back on.