By Mark Tokola, Phil Eskeland, Troy Stangarone, Jenna Gibson, Kyle Ferrier, Sang Kim, and Juni Kim
As we look ahead to what might occur in 2018 we should also consider how key events from 2017 will continue to shape the year ahead. In 2017, there was significant change on the Korean Peninsula. South Korea underwent political change as the Constitutional Court approved the impeachment of conservative President Park Geun-hye, opening the door to early presidential elections in May and the election of progressive Moon Jae-in. North Korea made significant advancements in its nuclear and missile programs, with both North and South Korea beginning to adjust to the changes brought by U.S. President Donald Trump.
After a year of growing tensions on the Korean Peninsula from North Korea’s nuclear and missile advances and concerns over war between the United States and North Korea, one of the key questions for 2018 will be whether the crisis will fester or will there be an opportunity to reduce tensions? There will also be significant focus on the impact of sanctions on the North Korean economy and whether they can change Kim Jong-un’s calculus.
However, 2018 will not only be about North Korea. In February, South Korea will welcome the world to PyeongChang for the 2018 Winter Olympics. While the Games will be a celebration in South Korea, there is also hope that they will help to reduce tensions on the Korean Peninsula.
With that in mind, here are 10 issues related to North Korea, South Korean politics, and U.S.-Korea relations to follow that will have an impact on the Korean peninsula in the year to come:
Could War Break Out on the Korean Peninsula?
With the leaders of North Korea and the United States fighting over nuclear buttons, it is hard to imagine a more precarious situation on the Korean Peninsula going into 2018. But war can, and most likely will, be avoided as long as cooler heads in Washington and Pyongyang prevail.
Security and international relations experts have long debated whether Kim Jong-un is a rational actor and if a nuclear North Korea obeys the same rules of deterrence that kept full-scale conflict at bay during the Cold War. Many firmly believe that North Korea can indeed be deterred, and that preventative military action is unnecessary and dangerous.
The key will be to keep communication and coordination between Seoul and Washington tight. Allowing North Korea or China (or even unrelated issues like the Korea-U.S. Free Trade Agreement renegotiations) to drive a wedge between the two allies could provide enough confusion and uncertainty to allow a miscalculation to get out of hand.
The Impact of Sanctions on North Korea
One of the key issues for 2018 will be the impact of sanctions on the North Korean economy. Much of the international strategy for dealing with North Korea’s nuclear weapons and missile programs so far has been built around the strategy of using increasing economic pressure to bring North Korea to the negotiation table.
In 2016, North Korea’s economy was estimated to have grown nearly 4 percent despite increasing United Nations sanctions. Estimates for 2017 won’t be out until later this year, but the UN Security Council has passed four new resolutions imposing greater sanctions on Pyongyang and one would expect economic growth to slow. North Korea is now banned from exporting coal, which was its largest export item, as well as other goods such iron and lead ore, textiles, fish and agriculture products, wood, and machinery. The sanctions have also placed greater constraints on North Korean financial transactions and require all of North Korea’s overseas laborers to be sent home in one year. The vast majority of North Korean exports have been banned and limits have been placed on oil exports to North Korea.
As a result of the sanctions, North Korean exports to China are down $573 million compared to 2016 through November of last year. Most of the decline has come towards the end of 2017 when many of the sanctions began to come into effect. Will sanctions continue to lead to a decline in North Korea’s official trade? Will North Korea be able to increasingly evade sanctions as it appears to with reports of Russian and Chinese ships transferring oil to North Korea in violation of UN sanctions? Will the sanctions begin to have a significant impact on the North Korean economy, perhaps in the form of a currency crisis, that will begin to place pressure on the regime to enter into talks on its weapons programs? The new year should give us some insight into these questions.
The Advancement of North Korea’s Nuclear and Missile Programs
North Korea displayed disturbing advancements in missile and nuclear technology in 2017, including three successful intercontinental ballistic missile (ICBM) tests and a nuclear test in September showing North Korea’s highest yield yet. Each successive ICBM test conducted by Pyongyang demonstrated greater altitude and reach, with the most recent test in November estimated to be capable of hitting anywhere within the United States.
Despite a new series of UN sanctions passed in 2017 aimed at curbing North Korea’s weapons progress, 2018 will likely see North Korea continue to test the international community and demonstrate further advances in their weapons technology. Although North Korea established its ICBM advances in the past year, North Korea has yet to display missile re-entry capability, which would be a critical part of the country’s ability to launch a potential attack. North Korea may also seek to conduct more satellite tests and submarine-launched ballistic missile (SLBM) tests to emphasize the regime’s expanded weapons capabilities, as well as expand its stockpile of missiles and warheads.
The 2018 Winter Olympics
The 2018 Pyeongchang Winter Olympics will be the second time that South Korea has hosted the Olympic Games after it held the 1988 Summer Olympics in Seoul. This will also be the first of three consecutive Olympic Games held in East Asia with the 2020 games to be held in Tokyo and the 2022 games to be held in Beijing. In regards to local hopes for Olympic glory, South Korean athletes have traditionally had a dominant presence in speed skating, and a predictive analysis by Gracenote currently estimates another strong performance in the sport with a projection for South Korea to finish sixth in the overall Gold Medal count.
Despite local enthusiasm for the Games, lagging ticket sales have been attributed to international concerns over North Korea’s provocative behavior. In a New Year’s address, North Korean leader Kim Jong-un voiced openness to North Korea’s participation in the Winter Games. In response, South Korean officials have proposed talks to discuss North Korea’s involvement next week, which if obtained would be a significant development for South Korea and its hope to reassure a worried international audience. North Korea’s participation would also be a huge political win for South Korean President Moon Jae-in, who campaigned on improving inter-Korean relations through dialogue and convinced the United States to postpone annual exercises until after the Olympics.
Special Measures Agreement/Burden Sharing
President Donald Trump recently reiterated his campaign rhetoric and long-held belief that the U.S. “defends nations that are very wealthy, and we do it for almost nothing.” In this same speech in Missouri, President Trump relayed his conversations on defense burden sharing with a “couple of countries” during his recent trip to Asia that he believes are “getting away with murder and they got to start helping us out.”
Ever since 1991, the Republic of Korea (ROK) has provided some financial support to offset the cost of stationing U.S. troops on the peninsula. In 2016, General Vincent Brooks testified before the U.S. Senate that South Korea pays approximately 50 percent of the total non-personnel costs of the U.S. troop presence on the peninsula. Under the current SMA, Korea’s annual payment (in won) increases by the rate of inflation. In preparation for the President’s November trip to Asia, the White House highlighted Camp Humphreys as a “great example of burden sharing.” In the same testimony cited above, General Brooks confirmed that South Korea has paid about 91 percent of the cost of this base relocation.
In 2018, South Korea and the United States will negotiate a renewal of the Special Measures Agreement (SMA), which is set to expire later this year, to lay out the terms of the burden sharing arrangement for the next several years. As in most negotiations, both sides start off with their most extreme position. Over time, the two sides come together to reach an agreement. SMA negotiations will be tough with the Trump administration. However, experienced personnel in the Defense Department will continue to recognize Korea’s immense contribution to the alliance (i.e., devotes 2.7 percent of its GDP to its own defense; has military draft; has, in the past, contributed its own troops to support the U.S. in other conflicts; and purchases a significant share of its imported military equipment from the U.S.) and will not let the SMA talks undermine the U.S.-ROK alliance.
U.S.-Korea Trade Policy
President Donald Trump continued his campaign rhetoric to criticize past U.S. trade policy, including the Korea-U.S. Free Trade Agreement (KORUS FTA), as a source of job loss and economic desolation in the United States. He was on the cusp of withdrawing from KORUS and had the paperwork prepared to sign, but was persuaded at the last moment by other senior White House aides to not take this action and instead work towards negotiating changes to the underlying agreement.
However, the impetus for renegotiating KORUS – a rising bilateral merchandise trade deficit between the U.S. and South Korea since 2011 – has dissipated over the past 18 months as the U.S. experienced a significant decrease in the bilateral trade imbalance in its favor. While Trump Administration officials have finally recognized this fact, the goalposts have been moved to find “permanent solutions, not temporary forbearance,” to keep the U.S.-ROK trade imbalance low and possibly turn it into a surplus based on the philosophy of “free, fair, and reciprocal” trade. Nonetheless, the Trump Administration may run into its own self-imposed roadblock by not seeking major alterations to KORUS that would require changes to U.S. law, thus avoiding the need to trigger Trade Promotion Authority (TPA) and approval by Congress.
With formal negotiations set to begin on January 5th, the same day as the release of next set of U.S. trade statistics for the month of November, some of the areas under possible amendments and modifications to KORUS are changes to Investor Settlement Dispute (ISD) process; elimination of more non-tariff barriers to U.S.-made vehicles; and reforms in areas of digital trade, privacy, and financial services. Commerce Secretary Wilbur Ross also said that he hopes the KORUS renegotiation talks will go “quickly and smoothly” and that both sides will find “ways that work for all parties.” If this solicitous spirit imbues the negotiation teams, an agreement can be found relatively soon. However, if talks drag out because of unrealistic demands, this could have negative ramifications for other areas of the U.S.-ROK relationship.
Lastly, there are two other trade decisions in 2018 that could negatively affect South Korea with respect to U.S. government investigations into alleged “unfair” trade practices – (1) the Commerce Department study on the national security implications of imported steel is due on January 15th, with a presidential determination within 90 days to possibly issue higher tariffs as a tool to protect the U.S. steel industry (Korea represents the third largest source of imported steel for the U.S.) and (2) the President has until February 2nd to make a decision on possibly increasing tariffs on imported large residential washing machines made by Korean-owned companies LG and Samsung to protect Whirlpool (based in Ohio) from an alleged import “surge” (even though LG and Samsung will soon be manufacturing washing machines in the U.S., employing over 1,500 workers). Decisions to increase tariffs could prove to be additional irritants in the U.S.-ROK relationship, and could mar the KORUS talks.
Will China’s Economic Pressure on South Korea Over THAAD End?
In the summer of 2016, China began taking steps to apply economic pressure on South Korea over Seoul’s decision to deploy the U.S. Terminal High Altitude Area Defense (THAAD) system. By 2017, China was informally sanctioning South Korea’s tourism, entertainment, and auto industries, as well as Lotte directly for providing the land on which was deployed. Altogether, the economic losses to South Korea from China’s boycott have approached $10 billion.
At the end of October, South Korea and China announced that they had agreed to normalize economic ties. While Beijing had insisted that the dispute would not truly be over until South Korea made the appropriate decision on THAAD, it looked at the time as though the two sides had agreed to disagree as China partially lifted its ban on group tours to South Korea. It was not meant to be. A little more than a month later it appears that China has re-imposed the tourism ban, and while South Korean automotive sales have improved in China it looks as though the retaliation over THAAD is set to continue into 2018. Rather than lifting its economic pressure on South Korea, look for China to moderate it over 2018 but to not completely lift its economic pressure.
Moon Jae-in’s Promised Economic Reforms
The South Korean economy is projected to grow over 3 percent in 2018, led by recovering global trade expectations. However, the key issue to watch this year in the Korean economy is how effective the administration’s reform agenda will be in spurring domestic demand. Moon’s social and economic reform platform arguably won him the presidency and his implementation of it so far has sustained his high approval ratings. The popularity of Moon’s strategy stems from its rejection of past policies, reversing conventional economic thought by arguing job creation leads to growth.
Perhaps the most consequential advancement of the agenda thus far came was the budget passed by the National Assembly in December. The budget increased social welfare spending and created around 9,500 new public-sector jobs, both are major steps towards achieving Moon’s lofty goals.
While this new path could help to address Korea’s widening social problems and boost the domestic economy as a portion of overall GDP, it is still largely unproven. Whereas 2017 laid the groundwork for Moon’s ideas to be enacted, 2018 will be prove crucial in determining their success and sustainability. All of this could however be moot if burgeoning household debt is not reigned in.
South Korean Local Elections
South Korean domestic politics will face another bumpy road in 2018. The June 13th local election will be the Moon Jae-in Administration’s first major political event and a litmus test for Moon’s first year. It could also change the political landscape for next four years.
With Moon’s continuous high approval rate, the Democratic Party of Korea has a strong advantage over its opponents. According to the Korea Times’ New Year public opinion poll, an overwhelming majority in Seoul, Busan and Gyeonggi providence said they will support Moon and the ruling party in upcoming local election.
However, opposition parties are hoping to flip the political tide in their favor. Ahn Cheol-soo, the leader of the People’s Party and the Bareun Party leader Yoo Seun-min have been pushing for their parties’ merger to attract the votes of centrists and moderate conservatives. Whether the synergy from the merge will be strong enough to make them the main opposition party ahead of Korea’s Liberty Party is debatable.
The major race to watch out for the June election will be the Seoul mayor’s race. The incumbent, Park Won-soon, will be the first Seoul Mayor in history to run for the third term. According to DongA Ilbo survey, Park has overwhelming support over other potential candidates.
With five months left until the election, there is a plenty of time for unexpected changes.
Hallyu’s Ongoing Rollercoaster Will Continue
The last year was one of extremes for Korean pop culture overseas. Starting in 2016 and continuing throughout 2017, the market for Korean cultural content in China began to dry up amid formal and informal boycotts over THAAD. After years of Hallyu fever in China, concerts by Korean artists and endorsement contracts for Korean celebrities have become few and far between.
Meanwhile, though, boy band BTS may have achieved what was once deemed impossible – breaking into the mainstream American market. After appearances on the American Music Awards and The Ellen Show, BTS topped off the year with a performance at Dick Clark’s New Year’s Rockin’ Eve, and broke their own record for the longest run by a k-pop group song on Billboard’s Hot 100 chart.
In 2018, expect more of the same for both these phenomena. Even if China lifts some restrictions this year, Korean entertainment companies will likely be reluctant to rush back into the Chinese market. In fact, some groups with a stronghold in China such as EXO, who releases all their music in both Korean and Mandarin, have shifted toward more Japanese releases.
Meanwhile, it remains to be seen where BTS’s success in the United States will take them, and whether their popularity will open doors for more mainstream interest in other k-pop acts.
And finally one bonus issue:
Will There Be Constitutional Reform?
President Moon Jae-in has promised to reform the South Korean Constitution and intends to hold a referendum on proposed changes in conjunction with local elections in June. The 1948 Constitution has been amended nine times, with the biggest change in 1987, when presidency was changed to a single five-year term. A two-thirds majority in the National Assembly will be required to pass the constitutional reform bill that would then be put to the referendum.
Although there is consensus that the current Constitution grants too much power to the President, there is no agreement on how to curb the President’s powers. Suggestions include: introducing a four-year, two-term Presidency; increasing the powers of the Prime Minister, perhaps by making the Prime Minister responsible for domestic policy while leaving foreign and security policy to the President; giving greater autonomy to regional and local governments, perhaps in the areas of education and local finance; creating a system for ballot initiatives and a recall system for National Assembly Members to strengthen “direct democracy”; and changing the system of National Assembly elections to increase the influence of smaller parties. President Moon, formerly a human rights lawyer, has also said that he is interested in strengthening human rights provisions of the Constitution.
The first half of 2018 will see a strong push for agreement on Constitutional revisions in time for a June referendum. If the parties cannot agree on a proposal, Constitutional reform will become an issue for the 2020 National Assembly elections.
Mark Tokola is the Vice President of the Korea Economic Institute of America, Phil Eskeland is the Executive Director of Operations and Policy, Troy Stangarone is the Senior Director for Congressional Affairs and Trade, Jenna Gibson is the Director of Communications, Kyle Ferrier is the Director of Academic Affairs and Research, Sang Kim is the Director of Public Affairs and Intern Coordinator, and Juni Kim is the Program Manager and Executive Assistant. The views expressed here are the authors’ alone.
Image created by Jenna Gibson. Photos from William Proby and Korea Net on flickr Creative Commons, and from Wikimedia Commons.