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The Peninsula

10 Issues to Watch for on the Korean Peninsula in 2019

Published January 3, 2019
Author: Yong Kwon

By Mark Tokola, Phil Eskeland, Troy Stangarone, Kyle Ferrier, Juni Kim, Yong Kwon, and Sang Kim

2018 was a year of dramatic change on the Korean Peninsula. The prospect of war that seemed to growth with each North Korean nuclear or missile test receded as North Korea, the United States, and South Korea moved towards diplomacy which culminated in the historic summit meeting between U.S. President Donald Trump and North Korean Chairman Kim Jong-un in Singapore.

While the move towards diplomacy with North Korea was the top story of 2018, the year also saw South Korea successfully host the 2018 Winter Olympics, South Korean President Moon Jae-in move more directly towards implementing his income lead growth strategy, and K-pop take another significant step towards breaking out in the United States.

As we move into 2019, some of the big questions facing the Korean Peninsula will center around whether real progress can be made with North Korea now that we are beyond the initial stages of diplomacy and what that means for inter-Korean relations. Other key issues for 2019 will be how the U.S.-China trade war plays out and the implications for South Korea, as well as whether income lead growth will be able to overcome some of the initial implementation challenges it has faced.

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 ahead:

Whether a Peace Process Can Develop

It is generally believed that the denuclearization of North Korea will be accompanied by a “peace process” (or peace regime, or peace declaration, or end-of-war declaration – there are many terms being tossed around) but what this would actually mean or whether it would come before or after an agreement on denuclearization is unclear.  The “peace process” may come in pieces.  There is nothing to prevent North and South Korea from declaring on their own that peace has come to the peninsula.  Similarly, the United States and North Korea could issue a joint statement saying that have no hostile intent towards one another.  If such statements can promote denuclearization or decrease tensions, well and good.  The devilish details would be in what concrete steps if any would accompany a declaration of peace.

2019 may well see announcements of peace on the Korean Peninsula.  It would seem like an irresistible flourish to mark Kim Jong-un’s visit to Seoul, or to give an appearance of progress for a second Trump-Kim Summit.  But, watch for the details.  Would a declaration of peace be accompanied by a road map towards denuclearization? A normalization of relations with liaison offices being established in Washington and Pyongyang?  A more wide-ranging commitment by North Korea to restrain its belligerent behavior beyond denuclearization, such as in cyber or other weapons systems?  Would there be a move towards formally ending the Korean War by winding up the armistice? Thinking through what a peace process would mean reveals that there are big issues beyond denuclearization.

Will the United States Lift Sanctions on North Korea?

In his New Year’s Day address, Kim Jong-un called for the United States to lift sanctions if it wants the process of dismantling North Korea’s nuclear weapons to go forward. In the past, the Trump administration has said that North Korea would have to dismantle or substantially dismantle its weapons programs before sanctions relief would be possible. With progress with North Korea stalled, one of the key questions for the Trump administration will be whether it sticks to its stance or accommodates North Korea’s push for sanctions relief.

If the Trump administration decided to move forward on sanctions relief there are four general ways it could look to pursue to move the talks forward and demonstrate good faith. The first area would be to support inter-Korean engagement. Here the administration could support further sanctions waivers to allow inter-Korean economic projects to advance. At the United Nations, the administration could support removing one or more specific sanctions that have been placed on North Korea. Another, more likely option at the UN, would be for the administration to pursue time-limited waivers of sanctions that are contingent on progress by North Korea in dismantling its nuclear programs. The final option would be for the administration to waive one or more specific U.S. sanctions where it has the authority to provide a national interest waiver.

Burden Sharing and the U.S.-Korea Military Relationship

As part of his professed “America First” values, U.S. President Donald Trump has repeatedly criticized South Korea, and other U.S. allies, for what he views as an unfair defense burden to America for stationing U.S. troops. The U.S. has maintained a military presence in South Korea since the Korean War in the 1950s and South Korea currently hosts 28,500 American troops, the third largest number of troops stationed in a foreign country after Japan and Germany. Ten rounds of negotiations occurred throughout 2018 between U.S. and South Korean officials to renew the Special Measures Agreement, a 2014 burden sharing deal that is set to expire at the end of 2018. The latest round failed to reach a deal over demands from the U.S. for South Korea to greatly increase its contribution and has prompted fresh concerns over the U.S.’s commitment to the alliance. Without a new deal in place, Korean workers at U.S. military bases in South Korea are in danger of being put on leave in the New Year. If left unresolved, the ongoing debate over cost-sharing could greatly hinder future U.S.-ROK relations.

The Future of THAAD in South Korea

China’s protest of the deployment of Terminal High Altitude Area Defense (THAAD) batteries, which were provided by the U.S. military, in South Korea in 2017 led to a political and economic row between the two countries. A resulting Chinese ban on tourism to South Korea and South Korean goods eventually gave way to an agreement late last year to normalize trade relations. Although trade and tourism numbers have started to rebound in 2018 after dramatic decreases in 2017, negative repercussions still remain, though the exact cost of the sanctions are hard to definitively quantify South Korea has likely lost more than $13 billion from the decline in tourism alone. In particular, the Korean conglomerate Lotte, which provided the land for THAAD deployment, has suffered from the after-effects of China’s sanctions with its stores in China shuttering due to lost business.

For 2019, it will be worth watching if the numbers continue to recover and how South Korean businesses adapt to the potential risks of dealing with a volatile Chinese market. For Lotte’s part, the company has actively courted Southeast Asian markets to make up for Chinese losses. It will also be worth watching if THAAD becomes part of talks with North Korea or the expected results of a South Korean environmental impact study affect its deployment.

U.S.-Korea Trade Relations – Section 232 Investigation

The past year has seen great progress in ameliorating initial uncertainties:  exports of U.S. goods and services to Korea increased 10 percent; the bilateral trade deficit declined by 43 percent; and agreements were reached and ratified to modify the Korea-U.S. Free Trade Agreement (KORUS FTA) and to limit Korean steel exports to the United States.

Nonetheless, there is still one looming threat – the possible imposition of U.S. tariffs as high as 25 percent on imported motor vehicles and parts from South Korea.  The Commerce Department has until February 17, 2019, to release the results of its Section 232 investigation into the national security implications of imported autos and parts.  If the report concludes that these products are a threat to U.S. national security, the President has until May 17, 2019, to make a final decision on tariffs.  However, because Korea and the U.S. concluded their negotiations on KORUS and steel two months before the Commerce Department launched this investigation, other major auto producers – Canada, Mexico, Japan, and the European Union – received reprieves or waivers on higher tariffs during their trade talks with the United States.  No decision has yet been made to exempt South Korea from higher tariffs even though Korea imposes zero tariffs on motor vehicles imported from the United States; the revisions to KORUS made several changes benefiting U.S. automakers, including a 20-year extension of the 25 percent U.S. tariff on imported pick-up trucks; and the value of U.S. imports of motor vehicles and parts from Korea has steadily declined since 2015.  Imposing a 25 percent tariff on imported cars and parts would also add approximately 10 percent to the production cost of Korean name-plated cars assembled in Georgia and Alabama, making their vehicles less affordable to the American public, resulting in a significant reduction in employment at both their manufacturing facilities and their dealerships.

Compounding the issue is the frustration that President Trump expressed on November 28th regarding the recent announcement of the closure of four GM plants in the U.S. that make auto parts and smaller vehicles.  The President tweeted, “the countries that send us cars have taken advantage of the U.S. for decades,” reflecting a fundamental worldview that he has believed for over 30 years.  Trump added, “if we [imposed a 25 percent tariff on] cars coming in, many more cars would be built here.”  Because Korea still exports some cars to the U.S. that compete against GM, the threat of a higher tariff could be used to pressure Korean car manufacturers to move even more production to the United States.  President Trump also desires that Korea pay much more to continue stationing U.S. troops on the Korean peninsula.  He could use the threat of higher car tariffs as another pressure point on South Korea.  Unless Korea is granted an exemption on the auto tariffs, much of the goodwill in the bilateral trade relationship that has been generated over the past year will quickly dissipate because it will be perceived as bad faith in terms of moving the goalposts in bilateral trade negotiations.

The U.S.-China Trade Conflict

On the surface, tension in U.S.-China trade relations does not appear to affect South Korea too much because South Korea’s economy is more aligned with the United States.  However, because China is now Korea’s largest trading partner, South Korea could be caught in the undertow of the churn in U.S.-China friction.  Some Korean brand consumer electronic products are assembled in China and subsequently exported to the United States, which now has to be re-thought in light of the threat of U.S. tariffs as high as 25 percent on Chinese exports.  Other products assembled in China also contain significant Korean content.  For example, the screen on the new Apple iPhone XS is made by either Samsung or LG.  The Korean stock market frequently gyrates at any movement in U.S.-China trade talks – up when negotiations progress and down when discussions stall.  The two sides have given themselves until March 1, 2019, to conclude a successful agreement.

However, many of the irritants in the U.S.-China trade relationship are deep and foundational problems to the Chinese economy and most likely cannot be cured in less than three months.  If an agreement is reached that just makes marginal changes on the edges, such as a commitment by China to purchase more U.S. products or lowering the tariff on imported autos, then the U.S., and by extension, Korea, will continue to face long-term economic challenges from China.  If the U.S. acts in concert with other nations that have similar concerns about unfair and trade-illegal Chinese practices, then multilateral action can spark necessary reform to China’s economy.  However, if the talks break down and the U.S. continues to act alone by imposing more and more tariffs irrespective of how it affects constituencies in the U.S. or other nations like Korea, China will ironically gain the moral high ground as the defender of free trade and unnecessarily delay the market-oriented changes the free world needs to see take place in China.

U.S.-Korea Cooperation in the Indo-Pacific

The “Free and Open Indo-Pacific Strategy,” first introduced over a year ago, now underlies Washington’s approach to the region. South Korea has yet to officially join the strategy nor is it likely to in 2019 due to concerns in Seoul that it could be interpreted as “containing” China or even forcing its hand to choose between Beijing and Washington. However, the overlapping goals between the Indo-Pacific Strategy and the Moon administration’s “New Southern Policy” provide new opportunities for both the U.S. and South Korea to work together beyond the Peninsula.

Both visions focus on increasing engagement with South and Southeast Asia on many of the same key issues based on the same core values, albeit in different ways. The clearest means to bridge the two is through infrastructure projects. The U.S. is looking to mobilize large, high-standard loans and the quality and cooperative nature of South Korean loans, Seoul’s efforts to direct more development assistance to ASEAN countries and India, and the competitiveness of Korean firms in building modern infrastructure make South Korea an ideal partner in achieving this goal. In 2019, look for Seoul and Washington to cooperate on infrastructure projects in the region as well as highlight their joint efforts.

Improving the Environment in South Korea

Although air pollution arose as an issue during the 2017 presidential election, leading candidates at the time focused largely on expanding dialogue with China and remained quiet on domestic sources of this public health threat. The issue returned with a vengeance this past November when extreme levels of ultrafine dust forced Seoul to restrict the number of vehicles on the road and construction. This comes at a particularly awkward time for the Moon administration, which responded to public concerns following the 2011 Fukushima Daiichi disaster by promising to phase out nuclear power in Korea.

Absent nuclear power, cleaner energy could be drawn from natural gas, which South Korea has been importing in increasing amount – particularly from the United States. However, this exposes Korea to geopolitical issues and market volatility. The Moon government is also making a big push to increase renewable energy capacity.

At this juncture, South Korea may consider looking to Taiwan – voters there rejected the phase-out policy in a referendum this year. With nuclear energy satisfying both clean air and energy security, this issue is poised to be revisited by both the government and the public in 2019.

South Korea’s Income Lead Growth/Job Creation

The state of the economy remains the biggest source of concern for South Koreans. After taking several months to get up and running, the first full year of the Moon administration’s income-led growth agenda has fallen short of its ambitious goals. Responding to his falling approval rating in light of underwhelming initial results that have increasingly become a major issue of public debate, President Moon has devoted more government resources to his economic agenda this year. However, the key question for 2019 is will this be enough to win back public support and reinvigorate the economy?

Moon’s income-led growth strategy is a novel approach to resolving the stubborn structural issues in the economy, but this also means it is largely unproven. The IMF and OECD support the agenda’s increased social spending, particularly given the government’s fiscal space, but these policies must also start creating jobs and bolstering growth to be sustainable. Even if the agenda is on the right path, the window to push it through may be closing. More interest rate hikes by the Federal Reserve and the prospect of worsening trade tensions between China and the U.S., both of which have already impacted the economy, could make it harder for Moon’s agenda to find more success this year.

The #MeToo Movement and Women’s Right 

Heightened advocacy for women’s rights was a global trend in 2018. In South Korea, the #MeToo movement gained momentum with women stepping forward with allegations of sexual harassment and violence against high-profile figures, including presidential-hopeful Ahn Hee-jung, poet Ko Un, and award-winning movie director Kim Ki-duk. However, advocates faced obstacles ranging from a relatively lenient legal code to deeply-entrenched social attitudes. Providing further proof of the current society’s antipathy to women’s concerns, the brave actions of women who came out publicly with testimonies of abuse – despite receiving international attention – resulted in very few prosecutions.

Korean women last year also confronted a proliferation of hidden cameras, which prompted protests demanding stronger punishment for trafficking of digital material that was filmed without consent. In response, the government has so-far announced tougher punishments for trafficking of these materials and announced plans to better police online sex crimes and remove illegal footage from the internet more swiftly. These will go hand-in-hand with broader protections such as extensions to the statute of limitations in sexual abuse cases and measures that would allow victims of harassment and abuse to report these crimes anonymously.

Notwithstanding, many advocates recognize that strengthening the legal system is a necessary but insufficient means to achieve true social change. With many women’s rights organizations now mobilized in the wake of the scandals in 2018, open debates about how cultural attitudes will be reformed will likely intensify in 2019.

Bonus Issue: Will Kim Jong-un Go to Seoul?

At their summit meeting in Pyongyang, Kim Jong-un agreed to Moon Jae-in’s proposal that he visit Seoul before 2018 ended. Kim never took that trip, but in his recent letter to Moon he expressed a desire to meet with Moon frequently in 2019 and “a strong determination to visit Seoul while watching future situation.” Whether Kim makes that trip will be one issue that many will be watching in 2019.

It is not surprising that Kim did not meet with Moon in Seoul in 2018. With progress in talks with the United States stalled and his meeting with Trump postponed until early 2019, there would have been little that Kim could have achieved in Seoul. Any trip to Seoul in 2019 will likely be dependent on how Kim’s next meeting with Trump goes and whether there is any historical progress Kim can make in Seoul. He will likely want to achieve more that than act of a North Korean leader visiting Seoul for the trip to go forward.

Beyond whether Kim will visit Seoul will be the question of how his visit is received. At the moment, Kim’s image has improved in South Korea with the current diplomacy and 60 percent of South Koreans would have supported the trip if he had taken it in December. One issue to watch from any visit will be whether it builds support for inter-Korean ties among South Koreans or causes them to reassess the current opening with North Korea?

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, Yong Kwon 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 Juni Kim.

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