North Korea: Recurring risk-off – Rabobank

As military options to solve the conflict between the US and North Korea seem infeasible, the most likely course is that trade policy will play a crucial role, according to analysts at Rabobank. 

Key Quotes

“Given China’s pivotal role, the US are likely to use trade as leverage on China. In fact, US trade policy vis-a-vis China is now mostly determined by the North Korea conflict. It is no coincidence that despite fierce campaign rhetoric last year President Trump waited until this week to instruct the US trade representative to determine whether an investigation into intellectual property rights violations by China is warranted.”

“However, while China has significant economic leverage over North Korea, Beijing does not have the geopolitical incentive to bring down the regime in Pyongyang. Consequently, a solution to the problem remains elusive.”

“This implies that risk-off movements in financial markets related to the conflict between the US and North Korea are likely to recur in the coming years.”