• Black LinkedIn Icon
  • Black Twitter Icon

©2020 BY UNIVERSITY OF WATERLOO FINANCE ASSOCIATION.

Search

North Korea—United States Summit


Author: Dragos Cada Research Analyst


After a long time of uncertainty on whether the North Korea-United States summit would actually take place, the leaders of the two nations finally saved the date on June 12th, 2018. Being the first time a summit has been held between a US president and a North Korean leader, the goal was to start the complete denuclearization of North Korea. In turn, the US would release their pressure on the regime by freeing up sanctions and suspending military drills in South Korea (1).


At the meeting, Kim Jong Un has agreed to stop North Korea’s nuclear program. However, the document signed by both parties has been said to be vaguely worded, and it is not clear on how the denuclearization will be implemented and verified. This raises concerns regarding North Korea’s seriousness about the issue. Previously, they have been in multiple agreements with the US about the same topic where they have sidestepped contracts to continue their nuclear program (2). Trump understands this, he requires North Korea to take some steps towards denuclearization before lifting sanctions. The decisions surrounding military drills are unclear since they weren’t outlined in the agreement (3). Overall, this agreement was a good start to further facilitate discussions between the two countries, but it should be taken with a grain of salt until more concrete proof of North Korea’s denuclearization emerges.


Implications


This agreement should not be viewed in isolation but also how it affects other US relationships. An important one is the US-China relationship, with the recent worries of a trade war beginning. China is North Korea’s closest ally and trading partner, but the US has constantly pressured China to put sanctions on the regime. While the tariffs imposed on China are mostly economical, the US is also using them to pressure North Korea indirectly. In fact, China’s leader met twice with Kim Jung Un, weeks before the summit (4). It is likely that China played a big part in pushing North Korea to agree with Trump’s proposal. If North Korea actually implements its denuclearization plans, it will ease negotiations between US and China. This decrease in tariffs will impact the equity markets positively, especially for the two countries.


While relations between North Korea and US have definitely improved from this summit, it does not have a significant impact on US markets. Even if the US increases their trading with North Korea, this will be insignificant since the regime has a very small GDP of $12.38 Billion USD. Compare this to US’ GDP of $18.57 Trillion; it is clear that the US will not benefit economically from this improved relationship. However if North Korea continues to follow US’ demands, there will be more stability in the markets which is more than welcome for the volatile year of 2018.



Works Cited


(1) North Korea Says Trump Intends to Lift Sanctions Against Regime

Bloomberg (June 13)

(2) Trump-Kim Deal Signals North Korea May Never Give Up Its Nukes

Bloomberg (June 13)

(3) North Korea Says Trump Intends to Lift Sanctions Against Regime

Bloomberg (June 13)

(4) China Gets Everything It Wanted From Trump's Meeting With Kim

Bloomberg (June 12)


The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the authors, which do not necessarily correspond to the opinions of University of Waterloo Finance Association (“UWFA”). Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by UWFA. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.

2 views