North Korea blinks

Posted By Daniel W. Drezner Monday, December 20, 2010 - 9:22 AM

Well, it was a very exciting weekend on the Korea peninsula, as South Korea vowed to go ahead with live-fire artillery exercises on Yeonpyeong Island, site of the artillery exchange between ROK and DPRK earlier this month. North Korea vowed to retaliate, the U.N. Security Council met all day yesterday without any agreement on the matter, Seoul recommended island residents go to bunkers, and everyone urged restraint by everyone else.

Very exciting!! How would today's exercise play out? Mark McDonald and Martin Fackler report for the New York Times:

Defying North Korean threats of violent retaliation and "brutal consequences beyond imagination," South Korea on Monday staged live-fire artillery drills on an island shelled last month by the North.

The immediate response from Pyongyang was surprisingly muted, however. A statement from the North's official news agency Monday night said it was "not worth reacting" to the exercise.

"Maybe we had a little impact," said Gov. Bill Richardson of New Mexico, who as an unofficial American envoy was in Pyongyang when the drills ended. Mr. Richardson, a former ambassador to the United Nations, said earlier that the North had offered concessions on its nuclear program, including a resumption of visits by United Nations inspectors.

Wait, that's it? Pyongyang issues threat after threat and then claims the whole thing isn't worth their bother? Let's dig a little deeper into the Times story:

The question now is whether the North will make good on its promises to retaliate, and how it might do so. Mr. Lankov, the analyst, said he did not expect a massive response by Pyongyang because the recent incidents are part of a North Korean "strategy of tensions," meaning that North Korean leaders want to choose when and where to strike.

"I do not think the North Koreans will do much this time," Mr. Lankov said. "They'd rather deliver a new blow later when they will be ready. But the maneuvers still mean a great risk of escalation."

Meanwhile, Mr. Richardson said the North had agreed to concessions related to its nuclear program, a main source of tension on the peninsula. A former United States special envoy to North Korea, Mr. Richardson was on an unofficial trip approved by the State Department. He met with high-ranking military officials, the North Korean vice president and members of the Foreign Ministry over four days.

Mr. Richardson said the North had made two significant concessions toward reopening six-party talks on the country's nuclear program. The North's proposal would allow United Nations nuclear inspectors back into the Yongbyon nuclear complex to ensure that it is not producing enriched uranium for a nuclear bomb. The North recently showed an American nuclear expert a new and stunningly sophisticated facility there. It expelled international inspectors last year.

North Korean officials also told Mr. Richardson that their government was willing to sell 12,000 plutonium fuel rods to South Korea, removing bomb-making material from the North, he said. "I would describe this as important progress," he said of the concessions.

So now North Korea also wants to restart the Six-Party Talks? What just happened? As always, trying to explain North Korean behavior is a challenging task. Here are some possible explanations:

1) North Korea finally got caught bluffing. True, they have the least to lose from the ratcheting up of tensions, but that doesn't mean they have nothing to lose from a military escalation with the ROK. The past month of tensions got everyone's attention, and North Korea is only happy when everyone else is paying attention to them.

2) Kim Jong Un was busy. One of the stronger explanations for the DPRK's last round of provocations was that this was an attempt to bolster Kim the Younger's military bona fides before the transition. Reading up on what little is out there, it wouldn't shock me if he planned all of this and then postponed any retaliation because he'd organized a Wii Bowling tournament among his entourage.

Somewhat more seriously, it's possible that there are domestic divisions between the military, the Foreign Ministry, and the Workers Party, and that the latter two groups vetoed further escalation.

3) China put the screws on North Korea. For all the talk about juche, North Korea needs external aid to function, and over the past year all the aid lifelines have started to dry up -- except for Beijing. As much as the North Koreans might resent this relationship -- and they do -- if Beijing leaned hard on Pyongyang,

4) North Korea gave the ROK government the domestic victory it needed. Bear with me for a second. The shelling incident has resulted in a sea change in South Korean public opinion, to the point where Lee Myung-bak was catching hell for not responding more aggressively to the initial provocation. This is a complete 180 from how the ROK public reacted to the Cheonan incident, in which Lee caught hell for responding too aggressively.

Lee clearly felt domestic pressure to do something. Maybe, just maybe, the North Korean leadership realized this fact, and believed that not acting now would give Lee the domestic victory he needed to walk back his own brinksmanship.

5) Overnight, the DPRK military hired the New York Giants coaching staff to contain South Korean provocations. Let's see... a dazzling series of perceived propaganda victories, followed by the pervasive sense that they held all the cards in this latest contretemps. Then an inexplicable decision not to do anything aggressive at the last minute, after which containment policies fail miserably. Hmmm… you have to admit, this MO sounds awfully familiar.

If I had to make a semi-informed guess -- and it's just that - I'd wager a combination of (1) and (4).

Alternative explanations welcomed in the comments.

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EXPLORE:INTERNATIONAL RELATIONS, EAST ASIA, NORTH KOREA, ASIA/PACIFIC, CHINA, NORTH KOREA, REPUTATION, SOUTH KOREA, UNITED STATES

Three ways of looking at Chinese economic statecraft

Posted By Daniel W. Drezner Wednesday, October 20, 2010 - 10:01 AM

Keith Bradsher reports on the latest move in Chinese economic statecraft:

China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted some shipments of those materials to the United States and Europe, three industry officials said this week.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle.

"The embargo is expanding" beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.

They said Chinese customs officials imposed the broader restrictions on Monday morning, hours after a top Chinese official summoned international news media Sunday night to denounce United States trade actions....

The signals of a tougher Chinese trade stance come after American trade officials announced on Friday that they would investigate whether China was violating World Trade Organization rules by subsidizing its clean energy exports and limiting clean energy imports. The inquiry includes whether China's steady reductions in rare earth export quotas since 2005, along with steep export taxes on rare earths, are illegal attempts to force multinational companies to produce more of their high-technology goods in China.

Despite a widely confirmed suspension of rare earth shipments from China to Japan, now nearly a month old, Beijing has continued to deny that any embargo exists.

Industry executives and analysts have interpreted that official denial as a way to wield an undeclared trade weapon without creating a policy trail that could make it easier for other countries to bring a case against China at the World Trade Organization.

So far, China seems to be taking a similar approach in expanding the embargo to the West.

Hat tip to Will Winecoff, who asks, quite reasonably, "What in samhell is China thinking?"

Assuming that the New York Times story is accurate, there are three ways to think about what Beijing is doing. First, this could just be all about domestic politics. Bradsher notes that the decision was made after a Central Committee meeting. It's possible that as the currency wars heat up, and as the U.S. starts complaining to the WTO, there was a need to assuage some nationalist outrage. Of course, no one really knows what Chinese domestic politics looks like, so who the hell knows how much validity to give to this argument.

The second way to look at it is that China's leaders have been reading The Sanctions Paradox. I argued in that book that high expectations of future conflict between the sanctioning and the sanctioned state would lead to frequent episodes of economic coercion, but each attempt would yield only minimal concessions. So far, this model holds up: the past month of China's rare earth export controls have yielded them exactly one returned fishing boat captain. Maybe they are hoping that extending the ban to the United States will force Washington to back down in their WTO complaints. Given rising conflict expectations, that's about the most they're going to get from this action.

The third way to think about it is that China is being ridiculously short-sighted in their use of economic coercion. As Patrick Chovanec notes at Seeking Alpha:

[China] really shot itself in the foot. By flexing its muscles so eagerly, over a relatively minor incident, it alarmed its customers and possibly frightened them off, when a softer approach might have lulled them into continued and deepening dependence. There's no question that China can extract rare earths at the cheapest price, in purely monetary terms. But now China's trading partners must be seriously wondering, what could the real price amount to, when the bill eventually comes due?

China's foreign economic policies with respect to raw materials suggests that Beijing doesn't think market forces matter all that much -- what matters is physical control over the resources. This is a pretty stupid way of thinking about how raw materials markets function, and it's going to encourage some obvious policy responses by the rest of the world. Non-Chinese production of rare earths will explode over the next five years as countries throw subsidy after subsidy at spurring production. Given China's behavior, not even the most ardent free-market advocate will be in a position to argue otherwise.

More importantly, China's perception of how economic power is wielded in the global political economy is going to have ripple effects across other capitals. If enough governments start reacting to China's economic statecraft by taking similar steps to reduce interdependence with that country, then China will have created a self-fulfilling prophecy in which geopolitics trumps economics. Another possibility is that the rest of the world will operate as before in dealing with each other, but treat China differently, developing CoCom-like structures and fostering the creation of explicit economic blocs.

That really would be the worst of both worlds for Beijing. China is growing, but the economic weight of countries that prefer market-oriented ways of doing business is still much, much larger.

In going for the short-term gain, China is inviting a long-term containment policy. That might allow for some rally-round-the-flag support at home, but it's going to be a massive net loss for their economy.

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EXPLORE:GLOBALIZATION, EAST ASIA, CHINA, CHINA, GLOBAL POLITICAL ECONOMY, GREAT POWER POLITICS, JAPAN, SANCTIONS, STRATEGERY

China has a longer learning curve than I had anticipated

Posted By Daniel W. Drezner Thursday, September 23, 2010 - 10:21 AM

There's been a lot of oh-my-God-China-is-eating-America's-lunch-have-you-seen-how-pretty-their-infrastructure-is?-kind of blather among the commentariat. And, to be sure, China has had a good Great Recession. But one of the points I've been making on this blog repeatedly is that, for all of China's supposed deftness, "China's continued rise seems to be occurring in spite of strategic miscalculations, not because of them."

Now, I had also assumed that China's leadership would quickly move down the learning curve and practice a more subtle form of statecraft. After reading Keith Bradsher in the New York Times today, however, I guess I was wrong:

Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, win turbines and guided missiles.

Chinese customs officials are halting shipments to Japan of so-called rare earth elements, preventing them from being loaded aboard ships this week at Chinese ports, three industry officials said Thursday.

On Tuesday, Prime Minister Wen Jiabao personally called for Japan’s release of the captain, who was detained after his vessel collided with two Japanese Coast Guard ships about 40 minutes apart as he tried to fish in waters controlled by Japan but long claimed by China. Mr. Wen threatened unspecified further actions if Japan did not comply.

Is this effort at economic statecraft going to accomplish Beijing's objectives? In a word, no. True, according to Bradsher, "China mines 93 percent of the world’s rare earth minerals, and more than 99 percent of the world’s supply of some of the most prized rare earths."

It's also true, however, that Japan has been stockpiling supplies of rare earths. Furthermore, this kind of action is just going to lead to massive subsidies to produce rare earths elsewherein the world (including the United States) and/or develop rare earth substitutes. Oh, and one other thing -- given the spate of flare-ups between Japan and China as of late, the last thing Tokyo will want to do is back down in the face of Chinese economic coercion.

Don't get me wrong -- if China persists in this ban, there will be come economic costs to the rest of the world. Those costs just won't translate into any political concessions. [UPDATE: The Wall Street Journal has an excellent follow-up story suggesting that China is not imposing a ban.]

It is hardly surprising that (reported) actions like these are leading the entire Pacific Rim right to Washington's door:

[R]ising frictions between China and its neighbors in recent weeks over security issues have handed the United States an opportunity to reassert itself — one the Obama administration has been keen to take advantage of.

Washington is leaping into the middle of heated territorial disputes between China and Southeast Asian nations despite stern Chinese warnings that it mind its own business. The United States is carrying out naval exercises with South Korea in order to help Seoul rebuff threats from North Korea even though China is denouncing those exercises, saying that they intrude on areas where the Chinese military operates.

Meanwhile, China’s increasingly tense standoff with Japan over a Chinese fishing trawler captured by Japanese ships in disputed waters is pushing Japan back under the American security umbrella....

“The U.S. has been smart,” said Carlyle A. Thayer, a professor at the Australian Defense Force Academy who studies security issues in Asia. “It has done well by coming to the assistance of countries in the region.”

“All across the board, China is seeing the atmospherics change tremendously,” he added. “The idea of the China threat, thanks to its own efforts, is being revived.”

Asserting Chinese sovereignty over borderlands in contention — everywhere from Tibet to Taiwan to the South China Sea — has long been the top priority for Chinese nationalists, an obsession that overrides all other concerns. But this complicates China’s attempts to present the country’s rise as a boon for the whole region and creates wedges between China and its neighbors.

This latest rare earth ban is just going to accelerate this trend. The ironic thing about this is that it's not like U.S. grand strategy has been especially brilliant. The U.S., however, has two big advantages at the moment. First, it's further away from these countries than China. Second, Washington's actions and rhetoric have been far more innocuous than Beijing's.

In yet another New York Times story, David Sanger provides a small clue as to whether Beijing either knows or cares about the blowback from its recent actions:

Early this month Mr. Obama quietly sent to Beijing Thomas E. Donilon, his deputy national security adviser and by many accounts the White House official with the greatest influence on the day-to-day workings of national security policy, and Lawrence H. Summers, who announced Tuesday that he would leave by the end of the year as the director of the National Economic Council....

[O]fficials familiar with the meetings said they were intended to try to get the two countries focused on some common long-term goals. The Chinese sounded more cooperative themes than in the spring, when two other administration officials were told, as one senior official put it, that “it was the Obama administration that caused this mess, and it’s the Obama administration that has to clean it up.”

Well, that is learning, but it's of a very modest kind.

Now, it is possible that Beijing has simply decided that its internal growth is so big that it can afford the friction that comes with a rising power. My assessment, however, is that they're vastly overestimating their current power vis-a-vis the United States, and they're significantly undererstimating the effect of pushing the rest of the Pacific Rim into closer ties with the United States (and India).

More significantly, and to repeat a theme, China is overestimating its ability to translate the economic interdependence of the Asia/Pacific economy into political leverage. With these misperceptions, however, China is risking some serious conflicts down the road.

Am I missing anything? I'm serious -- this problem ain't going away anytime soon.

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