North Korea conducted its 14th missile test of 2017 on Sept. 15, triggering an alert in Japan. The regime of dictator Kim Jong-un has also launched missiles near South Korea this year, tested a hydrogen bomb that experts say is several times more powerful than the two atomic bombs that were dropped on Japan in 1945, killed at least 129,000 people, and verbally threatened the United States.
At least eight nations have nuclear weapons, and some of them have had these weapons for decades, but none of these powers have come close to posing such a threat. Economic sanctions against North Korea haven’t deterred the Communist regime, and neither have worldwide condemnations, diplomacy, or efforts to isolate the renegade nation.
How can North Korea be stopped before it kills hundreds of thousands of South Koreans, Japanese people, and perhaps even Americans? The answer to this question is unclear, but radical measures could certainly be considered. On Sept. 3, President Donald Trump suggested a very radical measure — stopping trade with any nation that does business with North Korea. Since 90 percent of North Korea’s trade is with China, Trump was clearly referring to the nation’s sole ally.
“His tweet was widely regarded as a thinly veiled threat aimed at coercing China to do more to squeeze North Korea,” NBC News reported. “Trump has often said the Chinese should take more steps to rein in Kim Jong-un’s nuclear ambitions.”
While the odds of the U.S. halting trade with China seem questionable at best, the crisis that North Korea provoked is serious enough for Wealth Authority to examine how important China is to the U.S. economically, and which U.S. companies and industries would be most affected by economic sanctions against China.
Wealth Authority recently examined the scope of U.S.-Russia business ties after the U.S. strengthened its sanctions against Moscow on Aug. 2, and found that Russia was only our 30th largest trading partner in 2016. In the end, these sanctions don’t hurt America much. However, there is no doubt that sanctions against China would be far more significant.
“Cutting off trade with China would trigger a trade war and a protectionist spiral that would have adverse consequences for the entire world,” international economics expert Marianne Schneider-Petsinger told NBC News.
While Russia was the USA’s 30th largest trading partner in 2016, China was No. 1.
As Wealth Authority previously reported, the U.S. had a trade deficit of $347 billion with China in 2016. According to the U.S. Department of Commerce, China is first by a wide margin in value of U.S. imports and third behind Canada and Mexico in value of U.S. exports.
While addressing the trade deficit issue via sanctions or tariffs might sound appealing, the possibility of a trade war could harm many U.S. companies and industries.
“The retail sector is one of the bright spots in the trade relationship, perhaps the brightest,” Forbes magazine recently reported.
Although the headline of its article is USA Today also pointed out that several U.S. industries have “flocked” to China in the past few years, including agriculture, construction equipment, electronics, and textiles. While U.S. goods were only 6.5 percent of China’s imports in 2015, China’s consumers are increasingly interested in U.S. goods and services and are increasingly able to pay for them, the article added.
Another article published by Quartz lists many facts about which U.S. companies and industries would be most adversely affected by a decision by Trump to take action against China for its behavior. The facts include:
* Soybeans were the leading export from the U.S. to China in 2014. About $15 billion of soybeans were exported. Aircraft and parts, autos, and semiconductors were second through fourth among U.S. industries in value of goods exported to China.
* The technology industry relies more on trade with China than any other industry. About 5.7 percent of the industry’s revenue comes from China. Consumer discretionary, materials, and industrials are second through fourth.
* Companies in the semiconductor industry dominate the list of companies that are most reliant on China. Skyworks Solutions is the most dependent with 83 percent of its revenues coming from China. Qualcomm, Broadcom, Micron, and Nvidia are third through sixth.
* Among companies that aren’t in the semiconductor industry, the casino industry’s Wynn Resorts is the most dependent on China. About 70 percent of its revenues come from China. Wynn is followed by Yum! Brands restaurant, the Las Vegas Sands Corp. casino company, the Nu Skin beauty company, and the MGM Resorts International casino. Companies in the infant formula, building products, chemicals, mobile phones, auto parts, luxury retail, lab tools, and auto industries are also successful in China.
* China is among the top five trading partners of almost every state. Washington is the top exporter with $15.3 billion in goods exported in 2015. California, Texas, Illinois, and Oregon are second through fifth.
While any decision by Trump to end trade with China would be praised by historians if it resulted in North Korea scaling back its nuclear weapons program, there is no doubt that many Americans would suffer in the short-term – perhaps even the long-term.
Among other things, such a move would cause many empty store shelves at American stores, and a massive loss of American jobs. Unfortunately, North Korea’s ambitious may soon leave America’s political leaders with no other choice.
Regards,
Ethan Warrick
Editor
Wealth Authority
