North Korea and the Wisdom of Economic Sanctions

International news over the past few weeks has been dominated by the issue of the threat of nuclear strikes from North Korea, directed at both the United States and South Korea. Impetus for these new threats stem mainly from the United States’ success in convincing the United Nations to enforce harsher sanctions against North Korea, following an underground nuclear test carried out in February by the highly secretive nation. The ultimate aim of the sanctions is to suppress the activity of banks and money launderers who are suspected to channel a great deal of money to the regime’s missile and nuclear program. The sanctions include (among others):

• Banning export of luxury goods
• A freeze on funds and economic resources
• A ban on procuring arms and other technology listed by the U.N
• An embargo on arms and related weapons

Economic sanctions enforced upon North Korea are not a new strategy of foreign policy – the regime has been existing in an environment of externally imposed sanctions for 60 years. The question remains, however: are these sanctions really an effective way for the United Nations Security Council to achieve their goals? Are they the best way to cripple the powers of North Korea, who are determined to ensure that their nation is equipped with nuclear weapons, and will prove the strength of such weapons through continued, escalating tests?

Economic sanctions can be defined as “coercive measures taken against one or more countries to force a change in policies or at least to demonstrate a country’s opinion about the other’s policies”.[1] This “change in policy” is clearly what the United States and the United Nations are seeking, yet economists should first question the wisdom and assess the effectiveness of such a strategy. Largely, the mainstream international economic community has remained quiet on the issue of sanctions imposed upon North Korea. Admittedly, condemning the sanctions could be perceived as quite backwards considering North Korea is under the power of a highly secretive dictatorship who are guilty of some of the most brutal human rights abuses in the world today. However if these sanctions are not effective then continuing them makes little sense, and suggests that aims to debilitate the country economically should be replaced by actions that are likely to have a greater success rate.

As mentioned previously, North Korea has been under economic sanctions imposed by the United States for around 60 years. Political change has not occurred in this time, conversely, the latest round of sanctions (which have been some of the most restrictive ever) has led to the acutely grave situation that the world now finds itself in – with North Korea issuing constant threats to its political enemies. There is a case for the argument that the sanctions make it far more difficult for the North to obtain large quantities of weapons and illegal goods to work towards nuclear proliferation. They have been essentially cut out of the international finance system and any weapons that they wish to purchase must be paid in cash, a hugely inefficient way to conduct business. From this point, the sanctions seem to make sense. The undoing, however, comes from China’s refusal to properly enforce the United Nations’ designed sanctions. This leads us to a common realisation in international economics – that if the United States is to achieve its goals of destabilising the North Korean government, it must work in close collaboration with China, South Korea and Japan.[2]

The issue of economic sanctions is made more complicated by the fact that North Korea is in a state of near-autarky and relies very little on trade with neighbouring countries in order to keep its economic system functioning. Unlike comparative advantage trade models used by most of the rest of the world, Korea imports only goods that it cannot itself produce domestically. In turn, it only exports the minimum amount that is required to earn enough hard currency to pay for these necessary imports.

One formal study carried out on this issue was by international economists Gary Hufbauer and Jeffrey Schott, both experts on trade and foreign policy. They studied over 100 instances of sanctions being imposed on various nations, mostly by the United States, and mostly without cooperation from allied countries. Their study did not include the current sanctions forced upon North Korea, however they drew five conclusions about what is most likely to be a “successful” sanction. They found that economic sanctions were most likely to be effective when:

• Goals of the imposing country are modest.
• The target is already economically weak and politically unstable.
• The imposing country and the target country conduct substantial trade with one another.
• The sanctions are imposed quickly to maximise impact.
• The imposing country avoids high costs to itself.

In the case of the United Nations/United States’ mandated economic sanctions, only the fifth criterion is truly met. Whilst North Korea is economically weak, it is far from politically unstable, and these findings suggest that continued sanctions which increase in severity are unlikely to have the desired outcome.

It is almost impossible to assess the effect of the economic sanctions on the civilian population of North Korea due to the high level of secrecy surrounding the country, its operations, and the state of human rights there in general. However evidence from former sanctions placed on Iran and Iraq suggests that it is predominantly civilians, rather than members of government and the elite, who truly suffer from this externally imposed economic instability. Whilst the world waits to see whether North Korea will actually carry out their threats, it is worth reflecting on the wisdom of the economic sanctions levelled on the country. History suggests that they will not work, so is it time for the United States and the United Nations to try a different tactic altogether in dealing with this nuclear-armed threat?