Pandemic's impact on North Korea's trade with China

The Korea Times

The Korea Times

Opinion

Troy Stangarone

Pandemic's impact on North Korea's trade with China

Posted : 2020-05-26 17:05

Updated : 2020-05-26 21:25

By Troy Stangarone

North Korea's decision at the end of January to close its border with China likely minimized any outbreak of COVID-19 domestically, but it has also had a significant impact on its trade with China.

The decision by the United Nations in 2016 and 2017 to impose wide ranging sanctions on sectors of North Korea's economy in response to Pyongyang's continued nuclear and ballistic missile tests significantly reduced North Korea's legitimate trade with the rest of the world, including China.

But as nations began enforcing U.N. sanctions, China also became more critical for North Korea. By some estimates, it now accounts for 95 percent of North Korea's legitimate trade.

Pyongyang's measures to prevent the spread of COVID-19 are eliminating much of what trade remained.

In the first quarter, North Korea's exports to China declined by 79 percent compared to the same period in 2019. In March alone, North Korean exports to China were down 96 percent and only amounted to $616,000.

The picture is only marginally better when it comes to imports. In the first quarter, North Korea's imports from China were down 53 percent. While North Korea imported $197.4 million in goods from China in the first two months of the year, that plummeted to only $18 million in March.

With trade largely coming to a halt, North Korea has been unable to export watches, wigs, and other items that have become a growing source of revenue for the regime as it adapted to sanctions. But North Korea has also been unable to import the parts from China needed to make those watches.

COVID-19 has also meant that tourism, which had become a growing source of revenue for North Korea in recent years, has also come to a halt.

As with much of the world, COVID-19 has had a more significant impact on North Korea's trade than other viral outbreaks this century. When SARS occurred in 2003, the outbreak was largely contained to China. China's role in the world and with North Korea was also different. At the time, it accounted for a little more than 4 percent of the world's economy and only around a quarter of North Korea's trade.

In the intervening years, China has grown in importance for the world and North Korea. Today. China's economy accounts for more than 16 percent of the world's GDP and the vast majority of North Korea's trade.

The measures that North Korea put in place to prevent the spread of severe acute respiratory syndrome (SARS), as well as later outbreaks of Ebola and Middle East respiratory syndrome (MERS), were less stringent than the ones in place today.

North Korea's prospects are largely tied to China's own recovery in a way they weren't in the past. While some trade in goods may be made up if the border returns to normal, some will be permanently lost from the virus. This is especially the case for tourism.

While the decline in trade has reduced North Korea's ability to earn hard currency, it has also impacted its ability to import food and agricultural supplies. In a country where the U.N. estimates that 10 million people are food insecure, this should be a cause for concern.

According to the Ministry of Unification, North Korea likely faces a shortage of 860,000 tons of grain this year. The estimated shortfall could be filled in part or whole through imports of food from China and other countries, but the closure of the border has made that more difficult.

In 2019, North Korea imported nearly 185,000 tons of grains such as rice and corn from China and nearly 28,000 tons from other countries. While this level of imports would only account for about 25 percent of the expected shortage for this year, during the first quarter grain imports from China were down over 40 percent compared to the same period last year.

Some of the shortfall will be made up through humanitarian aid. In mid-May, Russia provided North Korea with 25,000 tons of wheat. China is known to have provided food aid to North Korea in the past and will likely do so again, but Pyongyang declined Seoul's offer of food assistance last year. In the current context, Pyongyang should reconsider that position.

While there have been some indications that restrictions along North Korea's border with China were beginning to ease, the border region is now the most significant source of new COVID-19 outbreaks in China.

Trade may take time to normalize. Once border restrictions are lifted and trade returns to normal, imports will play an important role in addressing North Korea's food shortages, but some form of food aid will likely be needed as well.

Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.