North Korea – Bottom line, we screwed up!

U_S__Urges_Fuel_Cutoff_for_North_Korea__Saying_It_s_‘Begging_for_War__-_The_New_York_Times_🔊By David Nelson, CFA

Bottom line we screwed up. Every President since Reagan bears responsibility for North Korea. Each passed it on to their successor and now President Trump is clearly facing a series of decisions that will likely define his presidency.

The administration has repeatedly said all options are on the table. It’s pretty clear after this weekend and what was potentially a thermonuclear detonation the sense of urgency is rapidly accelerating. Our Ambassador to the UN, Nikki Haley has said; “we’ve kicked the can down the road long enough. There is no more road left.”

Add Secretary of Defense James Mattis comments; “any threat to the United States or its territories including Guam or our allies will be met with a massive military response, a response both effective and overwhelming” and the picture gets pretty grim.

Once you’re in the nuclear club it’s difficult if not impossible to be expelled. We should have learned that lesson with India and Pakistan.

Now we’re faced with some pretty tough decisions.

I think what President Trump called for is maybe the best and only choice available. The question is; are we and our allies willing to pay that price? Cutting off trade with those who do business with North Korea has definite economic if not military consequences.

To date markets have shrugged off geopolitical turmoil having learned the lesson that BUYING the news was more profitable than SELLING it. Most of these incidents are transitory and often don’t spill over into the economy. However, terminating trade or even curtailing it with some of our largest trading partners will have definite economic fallout. Brazil, Germany and of course the big Kahuna China all do business with North Korea.

Kim’s end game is to have enough military leverage to threaten or hold hostage an American City. Extortion may not work when it’s some far off city like Seoul or Tokyo but San Francisco is another story.

It’s unclear if the rogue nation already has that capability. However, with each nuclear test getting stronger accuracy becomes less important. Also with conventional weapons on the border, Seoul is an easy target in the event of a preemptive strike by the United States.

Economic sanctions can work but they have to be massive leaving few options for the young dictator. China clearly has the most leverage so without them this is a strategy that’s finished before it even starts. Even if successful, there’s no guarantee that Kim will respond rationally. With experts and diplomats all conceding he’s a complete wild card we may be forced in the end to employ the military option.

Appeasement is never an answer as the President has pointed out but for diplomacy and or sanctions to work our allies and all parties with a stake in the outcome need to stand by our side. Hopefully our trading partners will see it in the same light understanding that North Korea is not only a threat to the United States but represents a clear and present danger to the civilized world.