N.K. Crisis: US May Sanction Russia, China Now

Politics

Mnuchin Bad Cop

Steve Mnuchin, member of the security council said today in light of the North Korean H-bomb test, "I'm  drafting a sanctions package for the president that will state that anyone who wants to do trade or business with them (NK) would be prevented from doing trade or business with us."  He followed up immediately with a tell-tale backpedal stating we will "work with our allies and China" on this.  All in his first contradiction filled sentences.

These sanctions always have plenty of exceptions or carve-outs. Lets take a look at the nations that deal with North Korea with carve-out potential

For the record, North Korea, while claiming to be an autarky based on the government ideology of Juche (self-sufficiency), publicly strives to maintain its domestic localized economy in the face of its isolation. However, even North Korea has extensive trade with the Russian Federation, the People's Republic of China, Syria, Iran, Vietnam, and many countries in Europe and Africa. ( source Wikipedia). 

So who exactly will we be cutting trade ties with in this list we haven't already?

What exactly is China to Mnuchin? A trade partner to Korea, an ally, or neither? Steve Mnuchkin's  double speak at the onset would give any "player" more incentive to push harder. China is a player. This, in our opinion is scary kneejerk rhetoric, and will not help. This idea is dead before it starts. Trade wars are like currency wars, short term effects are quickly negated by what the other country decides to do. When successful, they frequently end in real war.

Back to the facts...

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Trump Worse Cop

Shortly after noon ET, Trump underscored the threat of trade war involving both South Korea and China, when he tweeted "The United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea."

 

 

China Remains Calm

Meanwhile, China's Xinhua News Agency said President Xi Jinping and Vladimir Putin, meeting on the sidelines of a Beijing-led economic summit, agreed "to adhere to the goal of the denuclearization of the Korean Peninsula, have close communication and coordination and properly respond" to the test.

 Regional concerns were at breaking point: South Korea held a National Security Council meeting chaired by Moon. Officials in Seoul said Trump's national security adviser, H.R. McMaster, spoke with his South Korean counterpart for 20 minutes about an hour after the detonation. Japan's Prime Minister Shinzo Abe called the test "absolutely unacceptable."

Nuclear tests are crucial to perfecting sophisticated technologies and to demonstrating to the world that claims of nuclear prowess are not merely a bluff. The North claimed the device it tested was a thermonuclear weapon, also known as a hydrogen bomb. That could be hard to independently confirm. It said the underground test site did not leak radioactive materials, which would make such a determination even harder.

At the same time, the simple power of the blast was convincing. Japan's Defense Minister Itsunori Onodera said it might have been as powerful as 70 kilotons. North Korea's previous largest was thought to be anywhere from 10 to 30 kilotons. "We cannot deny it was an H-bomb test," Onodera said.

 Meanwhile, what form instrument of trade is not easily enforced in banking sanctions? Gold. Who just launched a Gold backed Yuan settled oil contract? China (and Russia by counterparty)

Gold Talks While Petrodollars Increasingly Walk

Every currency in the world has an identity, and  thus can be used in sanction enforcement. But gold means value without identity. The value is absolute and borderless.

FWIW- Right now the trade may be buy Bitcoin in anticipation of money moving offshore in multiple countries using Bitcoin as exchange currency for  USD. But what will those bitcoins be exchanged into once they are "safe"?

 

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