Virus Shuts North Koreas Best Route Around Trump Sanctions – Yahoo Finance

(Bloomberg) -- North Koreas decision to shut the border with China to avoid the coronavirus will set back its nascent economic recovery, renewing pressure on Kim Jong Un to return to nuclear negotiations with Donald Trump.

A jump in fuel prices, a dip in port activity and the suspension of train and air links show the early impact as reports emerge of the first virus case in North Korea. In recent days, Seoul-based NK News reported a 36% jump in diesel prices and diminished activity at the port of Nampho, along with new quarantine procedures.

The closed borders will cut off foreign tourism that provides the cash-starved state with hard currency and further limit the trickle of trade it has with the outside world. The economic blow -- if sustained -- might make it tougher for Kim to keep pushing back against Trumps demands.

Before the virus complicated matters, things had been looking up: Reforms, a bumper harvest and sanctions-dodging were helping North Korea claw back some of the lost growth triggered by tougher United Nations trade restrictions and a drought.

The UN Conference on Trade and Development estimated that the economy expanded by 1.8% last year, following its biggest slump in decades in 2018. That view tallied with a surge in Chinas imports that suggested an increase in economic activity and trade.

Global sanctions piled on North Korea in 2017 for its nuclear and missiles tests have slammed its trade and access to vital resources such as oil. That hasnt stopped Kim from building his nuclear arsenal and finding ways to evade the economic restrictions, such as the illegal trading of commodities via high-seas transfers between ships, the U.S. and others have said.

North Korea stepped up its illegal exports of coal last year, with most of those deliveries headed for China, according to a confidential UN report reviewed Monday by Bloomberg News. Pyongyang raked in $370 million of shipments from January through August alone, a panel monitoring the enforcement of sanctions on North Korea said in the report to the Security Council, citing evidence provided by an unidentified member state.

The Kim regime also managed to import luxury vehicles and other sanctioned items including alcohol and robotic machinery, the report showed. While these activities could be affected by the border closure, other illicit activity highlighted in the report wont, such as the countrys acquisition of virtual currencies and cyber-attacks against global banks to evade financial sanctions.

Prior to the virus lockdown, Kim had been pushing back against Trumps pressure. In a speech to ruling party leaders on Dec. 31 -- the same day reports of the new virus first emerged in China -- Kim denounced the U.S.s gangster-like acts and said he was no longer bound by a two-year freeze on tests of nuclear weapons and long-range missiles.

A resumption of major tests would undercut Trumps claim that his unprecedented decision to meet with Kim in June 2018 made the U.S. safer, just as he gears up for a tough re-election fight. Still, Kim has so far refrained from provocations that could blow up his relationship with Trump.

North Korean foreign ministry adviser Kim Kye Gwan said last month that Pyongyang would never propose trading a key nuclear facility in exchange for UN sanctions relief, according to state media. He added that it would be stupid to expect ties between Trump and Kim to help restart talks.

Even before the virus, there was a limit to how much Kim could do to shore up the economy without more access to foreign capital. One study after another has suggested that Kim would eventually face a economic crisis if he was unable to secure enough hard currency to sustain a push forward with development.

Kim wants sanctions lifted because he wants high-powered economic growth to underpin his power grip, but he has no reason to risk his survival by giving in to U.S. demands to denuclearize first, said Lee Jong-seok, a former South Korean unification minister. Kim wont budge, no matter the pressure.

(Adds details of sanctions-evading activity cited in confidential report)

--With assistance from David Wainer.

To contact the reporters on this story: Sam Kim in Seoul at skim609@bloomberg.net;Jon Herskovitz in Tokyo at jherskovitz@bloomberg.net

To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, ;Brendan Scott at bscott66@bloomberg.net, Malcolm Scott

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