The following is a summary of our recent interview with Jacob Shapiro, which can be accessed on our site here or on iTunes here.
Recently, we’ve seen markets pull back a bit, and many are citing geopolitical tensions, and particularly the recent saber-rattling between the United States and North Korea, as likely culprits.
This time on FS Insider, Jacob Shapiro, Director of Analysis at Geopolitical Futures (GPF), joined us for an in-depth update on current geopolitical events and to provide their analysis on North Korea's nuclear capabilities, US-China political dynamics, Europe, and more.
Rumors of Wars
Though the rhetoric from both sides has been alarming in recent weeks — culminating in North Korea’s apparently failed attempt to test a nuclear device — it’s important to keep in mind that North Korea is still controlled by a regime that will do all that it can to retain control over its populace, Shapiro noted.
“It is the world’s last remaining totalitarian state,” he said. “When you’re thinking about North Korea, the first thing you always have to keep in mind is that regime survival is going to be the most important thing.”
The issue troubling President Trump now is the threat level posed by Kim Jong Un potentially gaining possession of a deliverable nuclear weapon. As Shapiro says, this is a “red line” that the US won't allow North Korea to cross:
While there are many reasons to think this a ruse, Shapiro noted, we can’t base foreign policy on wishful thinking.
Tensions were extremely high this past weekend during the 105th birthday celebration of Kim Il Sung, the now deceased “supreme leader” of the North Korean regime, as North Korea threatened a nuclear bombing on the US while conducting a missile test.
Ultimately, though, the missile test failed and tensions were eased somewhat. Uncertainty still persists, however.
Winners and Losers
The United States wants to avoid direct action in North Korea, Shapiro said, and is leaning on China to help resolve the issue.
The quandary President Trump faces is that he promised tough action regarding trade policy with China. Now, the geopolitical pressure of the North Korean issue presents a big problem for his tough rhetoric.
“The winner in all of this is China, which has gotten at least the promise from President Trump of a more favorable trade posture from the United States,” Shapiro said.
While the United States had the economic advantage when it comes to negotiating its trade relationship with China, the tables may be somewhat turned now. In his first couple months in office, Trump realized he needs China’s help in dealing with Kim Jong Un.
China Has Leverage, But How Much?
The situation isn’t likely to escalate much beyond this point, in Shapiro’s estimation. The Chinese still have enough influence, power, and interest in North Korea to intervene and pull the North Koreans back from the brink, he stated.
It isn’t entirely clear how much actual influence China has in North Korea, however. Though it’s likely high enough to divert North Korean nuclear ambitions and defuse the situation, he expects China will have to rely on hard, rather than soft, power.
“It all has to do with regime survival,” Shapiro noted. “I think a little bit too much has been made of (China’s soft power), and I think much more in terms of the hard power and the things that China can do to threaten Kim Jong Un’s security.”
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