Tough choices in a tough neighborhood: Challenges and opportunities for the two Koreas

This FES Asia Corona Brief examines the international environment in which Seoul and Pyongyang face these difficult choices, outlines looming decisions in the short-/medium-term, and identifies some of the possible response measures. These decisions include how to grow their economies in the face of international headwinds, how to gain space for more autonomous action, how to make trade-offs between security and economic imperatives, and how to position themselves in their respective alliances with the US and China.

The State of Play

Three international factors are broadly outlining the two Koreas’ scope for action. In the first place, frictional competition between the US and China, including some economic de-coupling, will likely continue to destabilize economic and security structures foundational for Northeast Asia over the last thirty years. Regional and global commercial relations could be disrupted and re-ordered, the development of which would be critical for export-reliant countries such as South Korea. Increased geostrategic competition between Washington and Beijing would increase risk and threat levels for conflict in the region.

Second, the international rules-based order is becoming more frayed. Nationalism worldwide—including in all three major Northeast Asian states—is growing in social strength and political influence. Meanwhile China’s aim to change the status quo seem unabated for Hong Kong, Taiwan, the South and East China Seas, and the Sino-Indian border, even as a relatively declining US schizophrenically signals defensive assertiveness mixed with transactional isolationism.

Lastly, the COVID-19 pandemic is exacting a terrible toll on public health, with devastating knock-on social and economic consequences. Moreover, the political and diplomatic fallout of COVID-19 has fed into the two aforementioned factors, as US-China relations soured even more in the context of assigning blame for the pandemic, while most state governments’ reactions have exhibited an internally-focused, externally mistrustful attitude that hindered effective international cooperation in responding to the virus.

Implications for South and North Korea

Certainly the aforementioned three factors are interrelated, but on a regional level, the most impactful development is the intensifying strategic rivalry between the US and China. Underpinning this rivalry is a relatively strengthening China and a relatively weakening US. In light of the fact that Seoul and Pyongyang each have different relations vis-à-vis Washington and Beijing, the Sino-US rivalry presents different challenges and opportunities for the two Koreas. In both cases, however, the upshot is similar: Seoul and Pyongyang would each benefit from increased room for strategic maneuver.

South Korea’s constraints and options

For South Korea, the overarching problem is well-known. Seoul finds itself between the security hammer of military alliance with the US and the economic anvil of trade preponderance with China. Additionally, both Washington and Beijing are critical (albeit with diverging priorities) to Korean peninsula diplomacy with North Korea, which is a major desideratum of South Korea’s Moon Jae-in administration.

In general, to the extent the US pushes its East Asia interests vis-à-vis China, notably via pressing for cooperation from South Korea in the security domain, the greater the risk that China adopts tough economic countermeasures. Beijing has already done this starting in 2017, when Seoul’s acquiescence to the US’ installation of a THAAD battery on South Korean territory prompted harsh Chinese economic action against South Korea businesses.

In short, the Moon administration is navigating competing pressures from both the Trump administration and Xi Jinping’s foreign policy team. The state of the US-South Korea alliance is parlous, given Trump’s antipathy for alliances and demands for large increases in South Korea’s portion of alliance cost and burden sharing.

The Moon administration is also pressing to retake wartime operational control of its military, about which the US is reluctant (the US leads a US-South Korea Combined Forces Command (CFC) in which the US currently holds wartime operational control over all CFC forces). For its part, China has its own stipulations, including an expectation that South Korea does not join the US-led Indo-Pacific strategy (which Beijing considers an anti-China containment policy), and possibly that South Korea integrates Huawei technology into its 5G architecture. This is a development the US would fight bitterly.

Beyond hedging in its commitments to both the US and China, South Korea’s strategy for countering its dilemma position is a take on Eisenhower’s famous dictum: if you can’t solve a given problem, make it bigger. Indeed, Seoul is expanding its partner options, notably via the New Southern Policy—an economic policy of growing trade,investment, social, and diplomatic links with Southeast Asia. Despite the aforementioned sword of Damocles hanging over the multilateral rules-based order, South Korea also counts on “middle-power” diplomacy to open pathways to advance its interests globally and inter-regionally through cooperation in international fora with like-minded partners.

On the one hand, there is apparently significant low-hanging fruit in this regard, especially in emerging areas (cybersecurity, environment, sustainable energy, connectivity, fourth industrial revolution) with partners such as the EU. On the other hand, the fact that this low-hanging fruit is available speaks to domestic and international hurdles to taking it: Seoul’s diplomatic horizon is limited by domestic political bandwidth disproportionately dedicated to North Korea, while its difficult relations with Japan are a stumbling block to multilateral/minilateral cooperation with groupings in which Japan is a major player.

North Korea’s dilemma

North Korea is in a somewhat different situation with respect to the need for strategic room to maneuver: its problem is not that it is caught between Washington and Beijing, but rather that it is grossly economically dependent on China. This is now even more problematic given the border closure due to COVID-19. It is a real weakness that North Korea relies for more than 90% of its licit trade on a Beijing leadership that Pyongyang distrusts.

Moreover, the proximate source of this over-reliance, international sanctions (which also preclude significant inter-Korean economic cooperation), remain an enormous brake on North Korean economic growth, and negotiations designed to lead to sanctions relief in exchange for denuclearization are stalled. The fact that the US and China, who are necessary players in such negotiations, are in an escalating rivalry, means it is difficult to imagine Washington-Beijing diplomacy kick-starting a return to talks.

The small upside to the situation is that degraded US-China relations make it easier for North Korea to engage in provocations designed to force Seoul into actions that are either pro-Washington or pro-Beijing. This occasionally functions to drive a wedge between Seoul and Washington, which Pyongyang desires for strategic reasons—some of Pyongyang’s long-term designs for the Korean peninsula require the withdrawal of US soldiers from South Korean territory. This is a long-term goal, however, and the Kim regime badly needs economic growth (and thus sanctions relief) now in order to make certain that his core military and party supporters remain loyal.