May 2, 2017

North Korea: China's Leverage, U.S. Options

  • China has historically provided large wealth transfers to North Korea through the purchase of coal, amongst other means. China accounts for 90 percent of trade with North Korea.
  • China recently announced it will comply with a U.N. resolution and suspend imports of coal from North Korea for the rest of 2017. The key will be for China to maintain compliance.
  • The United States has other options in addressing the North Korea threat, including improving our missile defense systems and increasing financial pressure.

At last Friday’s United Nations Security Council meeting on North Korea, Secretary of State Rex Tillerson said “China alone has economic leverage over Pyongyang that is unique.” He added that China accounts for “90 percent of North Korean trade.” The Congressional Research Service notes: “China also provides food and energy aid that is an essential lifeline for the regime in Pyongyang.”

This leverage has been obvious for many years. At a hearing of the U.S.-China Economic and Security Review Commission in 2003, the chair and vice chair of the commission both discussed the “substantial leverage” China has over North Korea.

North Korea China Map

coal trade

U.S. Ambassador to the United Nations Samantha Power estimated last year that coal exports raised $1 billion in revenue for North Korea. CRS says more than 97 percent of the exports went to China.

After a North Korean nuclear test in January 2016, the U.N. Security Council passed in March 2016 Resolution 2270 to strengthen sanctions. It prevented all states from purchasing coal from North Korea unless “determined to be exclusively for livelihood purposes and unrelated to generating revenue for” North Korea’s nuclear or ballistic missile programs. China exploited this livelihood exception. CRS concluded that China’s importation of coal from North Korea over the next eight months actually increased in volume by 6.5 percent compared to the same period the year before. Shipments grew in value by five percent – from $726 million to $761 million.

When North Korea conducted another nuclear test in September 2016, the Security Council passed Resolution 2321, which capped the “livelihood” exception. In December 2016, the cap was 1 million metric tons or $53.5 million in value of coal, whichever was less. For 2017, the total cap is 7.5 million metric tons or $400 million in value. Once again, China’s implementation of the sanction left much to be desired. CRS estimated that China imported $184 million worth of coal from North Korea in December 2016 – more than triple the allowed value. 

A more positive development came on February 18 of this year. After importing $231 million worth of coal already in 2017, China announced that it would suspend coal imports from North Korea for the remainder of this year. This brings China back in line with what is allowed under the sanctions regime and is well below its previous import rate. The key will be for China to stick with its suspension both officially and unofficially, ensuring no illicit trade in coal is allowed.

U.S. options

Beyond the leverage China has over North Korea, the United States is not without recourse. First, we must take steps to mitigate and counter the threat from the North Korean nuclear weapons and ballistic missile programs. As the director of national intelligence and secretaries of state and defense jointly said after their meeting with Senators on April 26, “we remain prepared to defend ourselves and our Allies.”

The U.S. should continue to improve the missile-defense systems designed to protect the homeland. The March deployment of the Terminal High-Altitude Area Defense system to South Korea is a clear signal of the U.S. commitment to defending our ally.

In addition, financial institutions worldwide should be given a choice. They can either do business in U.S. dollar-denominated transactions or they can do business with North Korea. They cannot do both. The United States has tools, such as the North Korea Sanctions and Policy Enhancement Act, to make sure this choice is clear.

U.S.-DPRK-PRC regional dynamics

These measures demonstrate the problematic security dynamics the North Korean nuclear weapons program causes for the region. They are necessary to address the threat and reassure allies, but China sees them as diminishing its security and prerogatives. For example, China has taken retaliatory measures against South Korea in response to South Korea accepting the THAAD deployment. These U.S. steps only become more necessary as North Korea acts in a more belligerent and less restrained manner.

What is ultimately needed is a long-term strategy that deals with the reality that the regime of Kim Jong Un appears uninterested in being talked out of its nuclear weapons and ballistic missile programs. Chinese cooperation is important to that strategy, as long as it does not sacrifice other interests the U.S. is committed to defending and supporting in the region.

Issue Tag: National Security