Treasury Secretary Steven Mnuchin has publicly warned that the United States may seek to enact sanctions against any country that trades with North Korea. The intent behind the sanctions would be to cut off money flowing into North Korea, with the hope that that would slow down or scuttle the country’s nuclear program. The danger of those sanctions, however, is that they could risk igniting a trade war with China.
China is North Korea’s largest trading partner, accounting for over 80% of North Korea’s foreign trade. It isn’t the only trading partner though, as North Korea also has minor trade relations with India, Thailand, Russia, Mexico, Pakistan, and the Philippines. If those countries were to sever their trade relationships with North Korea, it wouldn’t have any major impact on them, nor would it have a significant impact on North Korea’s nuclear program. But if the US were to sanction those countries for the relatively tiny amount of business they do with North Korea, it could set back relations with them for years to come.
The case with China is more grave, as it would be nearly impossible for China to cut off all trade with North Korea. The Chinese government has taken significant steps to rein in the North Korean regime, beginning to cut down on North Korea’s access to the Chinese financial system, cutting back on exports of refined oil to North Korea, and now closing down North Korean businesses that do business in China.
China is risking a great deal by adhering to the new sanctions placed against the North Korean regime. The further North Korea is isolated by the international community, the more Kim Jong Un may be tempted to lash out, with inevitable consequences to China as it is pulled into the fray. But any moves to aggravate China on the part of the United States could undo everything China has done so far to put pressure on North Korea. It would likely ignite a tit-for-tat trade war that could disrupt vital trade between the US and China and result in rising prices for US consumers and deteriorating relations that will take a long time to mend.