Why War with North Korea Could Cost Trillions of Dollars

North Korean military participate in the celebration of the 70th anniversary of the founding of the ruling Workers' Party of Korea

Unleashing Trump's “fire and fury” on North Korea would rack up both human and financial costs.

“In the event of any conflict, China could more readily tap into its domestic coal and gas resources, but Japan and South Korea could be left wanting given their large dependence on imports, and their usual practice of not maintaining large stockpiles. The threat of conflict could help drive restarts in Japan's flailing nuclear industry,” Wood Mackenzie analyst Chris Graham said.

Global shipping may also be severely disrupted, since nine of the world’s ten busiest container ports, including South Korea’s Busan, are in Asia. China alone accounts for 13 percent of global exports and is the biggest single supplier to the United States.

“The Pacific would be shut down as a highway for global trade,” international relations expert Dennis Halpin warns.

Financial markets have largely ignored the Korean crisis in 2017, with only a small uptick in “safe-haven” assets such as gold, U.S. Treasuries and the Japanese yen, while South Korean stocks have risen by 16 percent this year.

However, a full-scale conflict on the Korean Peninsula would likely see stocks slump along with emerging market currencies, with a surge in safe-haven assets.

The disruption to the global economy could drag out, depending on how long it took for key factories to be rebuilt. Replacing the display manufacturing capacity of South Korea’s LG and Samsung alone could cost $50 billion, according to analyst Alberto Moel.

South Korea has previously estimated that the cost of rebuilding the North and preventing mass migration following reunification at around $1 trillion, the equivalent of its annual GDP and about two to three times the cost of German unification.

However, should the North Korean regime collapse, South Korea would obtain some economic benefits, including access to the North’s natural resources, lower defense spending and improved demographics due to the North’s younger population.

China, the world’s second-largest economy, and Japan, the world’s third-largest, would also suffer the fallout of a Korean conflict, depending on the nature of the conflict. For China, the disruptions to shipping lanes could threaten its exports, while it would also face the loss of North Korean trade, which it dominates.

Japan faces the risk of a strengthening currency, which would dampen exporters’ profits along with Tokyo stocks, as well as the threat to supply chains in Asia.

Notably, China, Japan and the United States are the three largest exporters to South Korea, while North America was the biggest recipient of foreign-direct investment from South Korea in 2016, amounting to over $19 billion.

While speculation continues over the potential endgame for North Korea, unleashing “fire and fury” as threatened by President Donald Trump would come at a very high cost in both human and financial terms. With America still paying the price of the “war against terror” in Afghanistan and Iraq, another major conflict would tax the world’s biggest superpower to its very limit.

Anthony Fensom, a Brisbane, Australia-based freelance writer and consultant with more than a decade of experience in Asia-Pacific financial/media industries. You can find him on Twitter: @a_d_fensom.

Image: Reuters