South Korea has ended trade links with North Korea, in response to the sinking of a South Korean ship allegedly by a North Korean torpedo.
According to the Chosun Ilbo, North Korea could lose 10% of its income immediately as a result, and then suffer further problems via unemployment further out. South Korea will barely feel the effects given that North Korean trade represents just 0.1% of its external trade.
North Korea is expected to take a direct hit from reduced employment and purchasing power. The $31.75 million Seoul paid Pyongyang in processing trade last year is close to the wages paid to over 40,000 North Korean employees at the Kaesong industrial park. No government statistics are available on the number of North Korean workers engaged in the processing trade, but assuming they earn half or a third what workers are paid at Kaesong, there may be up to 120,000 of them.
North Koreans employed in the seafood trade with the South will also lose their jobs. “Huge unemployment will deal a serious blow to the already impoverished North Korean economy,” said Lee Jo-won, a professor at Chungang University.
The state-run Korea Development Institute in a report Monday said a halt in inter-Korean trade will reduce the North’s purchasing power and deal its economy a direct blow. Pyongyang has managed its economy by purchasing necessary goods from China with the dollars it earned from inter-Korean economic cooperation. When that stops, it will have difficulty in securing money to buy goods from China. The North will attempt to diversify its export markets, but that will not be easy. It may try to divert goods it exported to the South to China, but most of them only fetch a high price in South Korea or are identical with Chinese export products.
Will trade restrictions just result in a more belligerent North Korea? Hopefully sanctions will collapse the regime without leading to violent death throes.