Key Points:
· The Trump administration has canceled the June 12th summit with North Korea
· China’s invitation to participate in the RIMPAC naval exercises has been revoked
· North Korea has nukes… but that may not be our biggest national security challenge
Background:
In the last month, apparent improvements in diplomatic relations between the U.S. and North Korea have been staggering. With China’s influence, North Korea appeared ready to cooperate at the negotiating table. China is essential to any resolution with North Korea; something the U.S. and international community acknowledge; however, as the Trump administration focuses on the Pacific, the threat of Chinese competition may hold primacy over various opportunities to cooperate with China.
What Has Happened:
Following critical statements out of Pyongyang regarding Vice President Pence and the announced U.S.‐South Korean military exercises, the Trump administration canceled the planned summit with North Korea. President Trump left the door open for future engagement. Simultaneously, the Trump administration informed China that they would not be permitted to participate in the international naval exercise RIMPAC. RIMPAC , established in 1971, is designed to ensure the safety of sea lanes and security on the world’s oceans. The U.S. hosts this exercise biennially.
Why it Matters:
North Korea has always been a national security concern and given its antagonistic behavior, one that has amplified in the last year. North Korea’s nuclear capacity has raised the stakes and enabled its relevancy as an international player. The Kim regime knows this. The summit had the potential to begin the process of stabilization in the region but also to ensure that North Korea matters less on the world stage. The summit had an intended outcome to decrease both the risks of a nuclear North Korea and Kim’s longevity. Kim’s the dog that caught the truck…what now? Despite the optimistic outlook these past few weeks, a resolution remained tenuous. Kim Jung‐Un is unlikely to denuclearize, a non‐negotiable for the Trump administration. While tensions with North Korea have monopolized much of the media attention, Chinese competition/cooperation has remained the more insidious threat to U.S. interests and national security.
The decision to uninvite China from participating in RIMPAC is in response to continued Chinese militarization of the South China Sea and the Spratly Islands. China has participated in the last two exercises, and China’s top diplomat responded to the news with disappointment stating, “We find that a very unconstructive move, nonconstructive move, we hope the U.S. will change such a negative mindset.” The challenge with China is finding opportunities to cooperate while still maintaining a competitive edge. China’s involvement in RIMPAC was an opportunity to cooperate in a controlled and measured environment. The Trump administration has taken a hard stance against China on economic factors and is now showing a willingness to respond to Chinese aggression in the South China Sea. Issues on trade have the potential to be resolved as we near the mid‐term elections but addressing Chinese military and diplomatic expansion in the region (and globally) is a much more complicated and potentially existential issue. China’s growth is the result of a messianic focus on its strategic and long‐term objectives. The U.S. has possibly lost sight of its own.
The following commentary is provided by Peter Thcir, Head of Macro Strategy at Academy Securities:
While stock markets reacted poorly to the announcement that the summit was off, that should not have a long‐term impact on markets. As General Marks has pointed out in the past, a deal with North Korea will take time, and tensions are unlikely to escalate beyond rhetoric, which markets have dealt with for over a year now. Without escalation, which still seems highly unlikely given the General’s insights, North Korea can remain on the back burner. The actions we have taken clearly up the ante with China and will likely become part and parcel of a trade deal with China. The harder we push, in my opinion, the more likely it is we get a comprehensive deal; including real protection on Intellectual Property and reciprocal access to markets. That is what markets, and the economy, really need to flourish. My backstop view remains that China offers us some big headline number concerning deficit reduction, which will sound great in the near term but won’t protect our long‐term interests. We all need to remember President Trump’s negotiating style. Upping the ante to cave later is well within his playbook. As General Marks points out, we are moving further apart, but if that is a temporary strategy as part of a broader negotiation, it can be resolved.
Original Post 05/24/2018