Give Peace, and Sanctions, a Chance

“Talk today.” That’s the substance of recent advice Congresswoman Tulsi Gabbard has been giving to President Donald Trump about North Korea.

Former U.S. Ambassador to the United Nations John Bolton takes a different tack. The essence of his message is “strike now.”

Both camps are far too impatient.

“Absolutely and immediately” was Hawaiian Democrat Gabbard’s response to George Stephanopoulos when he asked on ABC’s “This Week” whether Trump should initiate direct talks with North Korean leader Kim Jong Un.

“Forget it,” Bolton told Fox News Channel’s Harris Faulkner. “There is no time for this to have impact,” he declared, outlining what he called a “binary choice.”

“Absent some dramatic action by China, which I don’t see at the moment, we either have to decide that we’re going to use military force to destroy this nuclear weapons program, or we better be prepared to live with North Korea with a capability to drop nuclear weapons on any American city that the leadership chooses,” Bolton said to Faulkner on the “Outnumbered Overtime” show on Nov. 29.

But smart policy right now would give tougher sanctions a chance to bring about the diplomatic solution Gabbard demands and avoid the military action Bolton believes necessary.

Certainly, sanctions have failed to stop Kim from firing off ballistic missiles at a torrid pace last year – or detonating what almost certainly was a thermonuclear device on Sept. 3.

Yet sanctions are having an effect. The North’s economy grew 3.9 percent in 2016, according to the Bank of Korea, the South Korean central bank. The South’s National Intelligence Service projects sanctions could shrink Kim’s economy by as much as 5 percent this year.

Anecdotal evidence also suggests the coercive measures are beginning to bite. Some prices are up five-fold, and merchants are openly complaining about the scarcity of goods to sell. Pyongyang’s diplomats are turning to South Koreans for handouts of food. The elite soldier who defected across the border to the South in November had uncooked kernels of corn in his digestive tract, indicating he had been scrounging for food. Favored North Korean officials are not getting rations from their special distribution channel.

And there is direct evidence of the effect of sanctions. Supreme Commander Kim, in his New Year’s address, repeatedly referred to the punitive measures as a threat to his regime.

Trump’s underlying policy has been to cut off money flows to the North Korean state. His administration, pursuing its “maximum pressure” campaign, pushed hard for the three sets of U.N. Security Council sanctions enacted last year. His Sept. 21 executive order, which effectively makes countries choose between North Korea and the U.S., is a crucial step forward. And the Treasury Department’s June 29 designation of China’s Bank of Dandong as a “primary money laundering concern,” pursuant to the Patriot Act, was a needed signal to Beijing to stop handling North Korea’s cash.

Yet in recent months, Trump’s enforcement efforts have lacked their earlier vigor. The administration implied the U.S. would not enforce the Sept. 21 rules against conduct before that date, which is understandable. But it inexplicably has not gone after, among other things, obvious money laundering after that date.

Since late September, Chinese entities have been trading in oil and coal in large quantities with North Korean counterparts, and this trade required financial intermediaries, which were almost certainly Chinese banks. Yet even though the trade was obvious – Trump himself said in a Dec. 28 tweet that the Chinese were “Caught RED HANDED” – there have been no penalties imposed on traders or their banks since then.

Also not imposed were the measures the president promised on Nov. 29. That day Trump tweeted he had just spoken with Chinese President Xi Jinping and “additional major sanctions will be imposed on North Korea today.”

Moreover, the sanctions that have been imposed recently have been unimpressive. Treasury’s designation on Nov. 21 of one individual, 13 entities and 20 vessels was by no means the “very large” sanction the president promised the preceding day, when he added North Korea to the State Department’s list of state sponsors of terror.

Giving Up Prematurely

So Bolton looks correct when he says sanctions are not working. They’re not working, however, because the administration, from all public indications, has given up on them.

That is a mistake. The U.S. has overwhelming leverage over China. In 2016, China’s merchandise trade surplus against the U.S., $347.0 billion, accounted for 68.0 percent of its overall trade surplus. It is evident that last year, that percentage increased substantially as China’s U.S. surplus increased to another record while its overall surplus declined.

Moreover, America’s economy is far larger than China’s. In 2016, the U.S. produced $18.62 trillion of gross domestic product. China claimed its GDP for the year was $10.82 trillion. Last year, that gap probably increased because America’s growth rate, in reality, outpaced that of China, at least by a small margin. Bigger economies can push around smaller ones, especially when the gaps are this large. And that is true especially because the Chinese economy is held together now only by draconian capital controls – some of them unannounced, banana-republic style – and by internal rules and government actions meant to keep markets artificially high.

In these circumstances, all it would take is a nudge from Trump, perhaps in the form of a severe penalty for China’s numerous trade violations, to trigger a loss of confidence in the Chinese economy. The administration is now conducting three major investigations of China: one pursuant to the Trade Act of 1974 into persistent theft of American intellectual property, the second pursuant to Section 232 of the Trade Expansion Act of 1962 into Chinese steel and aluminum imports, and the third involving antidumping and countervailing duties pursuant to the Tariff Act of 1930.

`Big Hammer’

America’s big hammer, however, is over Chinese financial institutions, many of which have laundered money for the North Koreans and therefore have broken U.S. law. Trump could designate these institutions pursuant to the Patriot Act. That would mean they could no longer transact business in dollars, anywhere in the world. Particularly vulnerable to a death sentence would be Bank of China, named in a 2016 U.N. report for devising and operating a money-laundering operation for North Korea.

It wouldn’t take much to put China on its back. In 2015 and 2016, there was perhaps as much as $2.1 trillion of net capital outflow from the country. The only reason that another trillion did not leave last year was that Chinese technocrats erected their Great Capital Wall.

So Trump could destabilize the Chinese banking system, financial markets, and economy by taking robust action. Such action could even lead to changes in the country’s already roiled political system.

That means the U.S. has overwhelming leverage over China, which in turn, has overwhelming leverage over North Korea. Maybe Beijing could never change Kim’s mind, but it could certainly change the minds of those around him by signaling that it would cut off all diplomatic and economic support as well as assistance to the North’s weapons programs.

A `Rabid Dog’ in a `Large Cage’

In any event, Beijing knows it can control the North Koreans. As a retired senior Chinese military officer told an audience in Asia a few years ago, “North Korea is a rabid dog we have in a large cage.”

For Bolton, therefore, the message is that the choice is not yet binary. Sanctions – U.S. sanctions on China leading to Chinese sanctions on North Korea – can disarm the horrible regime of Kim Jong Un.

The message for Gabbard is that her favored solution is premature. She’s right, of course, that diplomacy is the way out of this dangerous imbroglio, but the issue is when to start discussions. The time to do so is when sanctions make Kim – or those around him – realize there is no choice but to disarm. Talking before then is bound to be as counterproductive as the various rounds of negotiations stretching back to the 1980s.

Many people say, “the North Koreans will never give up their weapons,” or “the Chinese will never exert pressure on their troublesome allies.” These statements are true, but only under the current set of incentives affecting Chinese and North Korean policymakers. Change those incentives, with the stroke of Trump’s pen, for instance, and everything else can change.