What Impact Do the Tensions in Korea Have on the Global Supply Chain?
The world has waited anxiously to see how much tension between North Korea and the United States may arise with regard to trade. As the relation between Kim Jung-Un and Donald Trump has grown testier, analysts are assuming that there might be several causes for concern.
Economists have observed a response to this crisis that includes an increase in buying of gold which is considered as a safe-haven investment. Other assets, such as the Swiss franc, and the yen have also increased in popularity. Investors around the world have been selling their stocks in greater numbers as well.
People have invested their money in Japanese yen as well, which is considered as another protective measure. All signs point to a reactive response among movers and shakers that indicate financial caution. This has, in turn, affected stock markets in various countries.
North Korea Tensions and Economy Are Related
North Korea tensions and stock market tremors have been felt in Japan, as the Nikkei 224 index fell to a four-month low. The KOSPI index in South Korea also dropped sharply by about % during the same period.
The Japanese yen has won out over South Korean currency as being more valuable. This is in contrast to the Japanese Prime Minister’s desire to lower the worth of the yen. A high yen price creates unfavorable trade conditions and drives stock market prices down.
The United States is currently being affected by a process referred to as a ‘news shock’. News of heightened defense spending emboldens people to spend money before it has materialized.
Military contractors have begun to receive government contracts, triggering more spending. This spending effect ripples out before the market can catch up, and prices have begun to go up. Economists are tracking this trend as it continues to develop.
North Korea Weapons Testing Increases Tensions
Since 2011, North Korea has consistently engaged in weapons testing. North Korea bragged in 2017 to be able to hit Los Angeles with a missile if they should choose so. Additionally, in recent months, North Korea shot missiles into Japan’s economic zone.
The pressure in the area dates back to the Korean war that was fought between 1950 and 1953. North and South Korea did not sign a peace treaty, but they did create an Armistice agreement. North Korea has threatened to undo this action at least four times in the last ten years.
Military experts believe it is unlikely that the United States will go to war with North Korea. Also, North Korea and United States trade is currently stalled to zero and will not be affected by tensions. The United States, however, has threatened to cut trading with countries that trade with North Korea.
China has refused to cut ties with North Korea, and they currently comprise 90% of North Korea’s exports. The result is uncomfortable, as countries have had to choose whether to side with the United States or cease trading with North Korea.
North Korea Tensions Put Electronics Supply Chain at Risk
The Asia-Pacific region of the world is slated to produce $191.8 billion in output related to electronics by 2022. A nuclear war would negatively impact the 72 major electronics companies that exist in the region. 17% of semiconductors and 64% of memory chips are produced by Taiwan, Japan, and other nations in the Asia-Pacific.
Experts note that these countries have lived under the threat of North Korea’s instability since the 1950s. It is difficult, therefore, to tell if North Korea’s threats of war will ever get materialized. Currently, it is anybody’s guess if world markets will be further impacted by North Korea’s volatility.