

Chapter 1

Geopolitical Change in Northeast Asia――Implications

for

the

KoreanPeninsula of New Relationships Between
World Powers
Kent E. CalderProfessor, Johns Hopkins School of Advanced International Studies (SAIS)
Director, Edwin O. Reischauer Center for East Asian Studies
Johns Hopkins University, USA[Key Points]
No part of the globe has undergone starker political and economic change over thelast 30 years than the Eurasian continent. Even as this dynamic territory influences therest of the world, the Korean Peninsula remains a destabilizing factor at the heart ofNortheast Asia, a region in which many of the world’s economic and military
superpowers are concentrated.

International frameworks and organizations have contributed to peacekeeping andeconomic interdependence at the global level, but a serious “organization gap” meansthat Northeast Asia has a zone devoid of international organizations.

Over the last few years, Northeast Asia has seen political power shifts that one could
go so far as to call fateful, and these continue to exert a geopolitical impact today.
With the emergence of the Trump administration in the USA added to the mix, theregion has reached a crucial and unpredictable phase.

Japan Center for Economic Research, FY2016 “Asia Research” Report | 1

The Korean Peninsula: Positioned at the Heart of Northeast Asia

Key Data

ソウル
北京
東京

Source: Google Maps (accessed September 14, 2016). Radius 1,500 miles (approx. 2,414km)

To a degree that is virtually unique among major regions of the globe, Northeast Asia brings the

major economic and military powers of the world together, around the unstable fulcrum of adivided nation--Korea. The three largest economic powers on earth—the US, China, and Japan—all

have fundamental interests there. So do three of the five major nuclear powers—the US, Russia,

and China—together with an unpredictable aspirant in Pyongyang, and two others (Japan and South

Korea) that could easily develop nuclear capabilities.

2 | Japan Center for Economic Research, FY2016 “Asia Research” Report

The tense, continuing standoff in Northeast Asia contrasts starkly to the dramatic

political-military relaxation and geopolitical transformation that has occurred in post-Cold War

Europe. Nearly three decades after the Berlin Wall went down, once-divided Germany is now

unified, and the once formidable Soviet Union, is now dissolved in its European dimensions. Yet atense geopolitical stalemate still persists around the Korean peninsula, governed not by peace

treaties, but only by an armistice along the DMZ. There well over 1.3 million troops, North andSouth, continue to confront one another.1

In Europe, a robust security structure—not just NATO, but the OSCE, the EU, and othermultilateral mechanisms—have helped to keep the peace, and to stabilize regional economic

interdependence. In Northeast Asia, by contrast, a pronounced “organization gap” prevails, with noover-arching multilateral bodies like NATO or the EU of Europe available to keep the peace andassure stable economic interaction.2 Allied forces in South Korea, to be sure, continue to serve1

Around 70 percent of North Korea’s regular army of nearly 1.2 million is deployednear the DMZ, together with the majority of South Korea’s 628,000 troops. In total,
there are probably around 1.3 million troops, on both sides, deployed close to the
DMZ, of the 1.8 million soldiers in the combined militaries of North and South Korea.
See Victor Kotowitz, “The Demilitarized Zone (DMZ),”
https://www.mtholyoke.edu/~jeehan/dmz.html and The International Institute forStrategic Studies, The Military Balance: The Annual Assessment of Global Military
Capabilities and Defence Economics, 2016 edition (London: Routledge, 2016), 264 and267.
2
On Northeast Asia’s “organization gap” and its broader implications, see Kent E.
Calder and Min Ye, The Making of Northeast Asia (Stanford: Stanford University Press,
2010), 13-14, 57-79.

Chapter 1 | Geopolitical Change in Northeast Asia | 3

under the authority of the United Nations, due to a fateful June, 1950 Security Council resolutionthat has never been rescinded. Yet the actual role of the UN itself in keeping peace is minimal today,

despite the presence of a former Korean Foreign Minister, Ban Ki Moon, as Secretary General forthe past decade (2007-2017).

The closest analogy in the broader world to Northeast Asia, as a region that poses bothstark geopolitical dangers of global significance, and also a pronounced regional “organization gap”,

is the Middle East. Both regions are stabilized primarily by a web of bilateral security ties—a “huband spokes” between regional powers (Japan, Korea, and Israel, for example) on the one hand, andthe United States on the other. Even the Middle East has a bit more regional organization thanNortheast Asia—the Arab League and the Gulf Cooperation Council (GCC), for example.

Northeast Asia thus stands alone, as it has since the end of the Cold War, when strategic dangers in

Europe waned, as a dangerous region. And it has a uniquely under-developed regional multilateral

security structure as well.

Korea in Regional Geographic Context

Koreans often speak of their nation as a “shrimp among whales”. While thischaracterization is to some extent true, especially in geographic terms, it is important to remember

the North Pacific’s “whales”—China, Russia, Japan, and arguably the US—all have rather different

4 | Japan Center for Economic Research, FY2016 “Asia Research” Reportunderlying characters, and rather different forms of engagement with the Northeast Asian region asa whole. This section of the paper reviews those varied national characteristics, while the following

section assesses long-term trends in regional political, economic, and military development.

As noted in Figure I, Russia and China directly adjoin the Korean peninsula from thenorth, while Japan is in close proximity across the Tsushima Strait, from the south. The UnitedStates, while a geographical member of the North Pacific, with Alaska’s outer Aleutian islands

lying less than 2500 miles from the Korean peninsula,3 is largely relevant for its global geopoliticalrole, and the crucial presence of the US Eighth Army, based in Korea. The US infantry and armor

presence serves as a tripwire along the DMZ, with substantial air force reinforcement for thatdelicate forward deployment further south.

3

The flight distance from Attu Island in the Aleutians to Pyongyang is around 2407
miles, and the distance to Seoul 2422 miles, according to Distance Calculator.

Chapter 1 | Geopolitical Change in Northeast Asia | 5

FIGURE I: KOREA AT THE HEART OF NORTHEAST ASIA

Source: Google Maps, maps.google.com, accessed September 14, 2016. Radius is 1,500 miles.

Contrasting Geo-Economic Profiles of the Contending Powers

The major powers surrounding Korea also vary in their economic and military capabilities, theirdemographic profiles, and their degree of transnational engagement within the Northeast Asian

region. China, in particular, looms large, in its economic scale, military capabilities, andgeographical proximity to Korea, as well as strategic interest therein, as suggested in Table 1. The

6 | Japan Center for Economic Research, FY2016 “Asia Research” ReportUS is a preeminent world power, of course, with a critical forward-deployed presence in Korea andsophisticated air and missile-defense capabilities. Yet it is geographically removed.

TABLE I: KOREA’S MASSIVE NEIGHBORS IN COMPARATIVE CONTEXTSouth Korea Economy in Comparative Context, 2015
South Korea
China
Japan
Land area(million sq. km)
Population, total(million)ScaleGDP(billion current US$)
Exports of goods
and services (BoP,
billion current US$)
Exports of goods
and services
Vulnerability(% of GDP)
Energy imports, net(% of energy use)*

Note:

RussiaUnited States

0.10

9.39

0.36

16.38

9.15

50.62

1,371.22

126.96144.10321.42

1,377.87

11,007.72

4,123.26

1,331.21

18,036.65

646.71

2,429.29

784.50393.21

2,261.17

45.90

22.09

17.90

29.53

12.55

83.47

13.51

93.85

-83.37

14.04

Data for 2013.

Source: World Bank, World Development Indicators.
Russia is both historically and prospectively the most marginal of the Northeast Asian“whales”. It is decidedly weaker along virtually all dimensions than the US and increasingly China,

while also demographically declining, and heavily dependent on energy reserves and militarycapability. Despite its formidable geographic scale, Russia’s economy is actually comparable innominal GDP terms to that of South Korea, as Table I indicates. With Russia’s geo-economic centerof gravity being several thousand miles away across the Eurasian continent in European Russia,

Moscow has also traditionally been less involved in Korean peninsula matters than the PRC, Japan,

Chapter 1 | Geopolitical Change in Northeast Asia | 7

or the US. This pattern may be changing, however, given Russian President Vladimir Putin’s recent“Look East” policies. And Russian support could be decisive in any concerted international effort toreshape North Korea’s priorities and intentions.

Long Term Regional Trends

The role of the major powers in Northeast Asia, of course, is dynamically changing, and

it is important to be aware of those trends in assessing future prospects. Broadly speaking, China

has been rising, both economically and militarily, although many see shadows on both its politicaland economic future over the coming decade, as demographic transition sets in. The “one-child”

policies pursued in China from the late 1970s until around 2015, together with the impact of rising

affluence on birth rates, will no doubt lead to a rapid aging trend in China during the 2020s andpossibly beyond.

Meanwhile, Russia has already begun declining in relative terms—economically,

demographically, and militarily—its assertive stance under Vladimir Putin notwithstanding. The

United States has, under Barack Obama, receded from its dominant and unipolar position of theearly post-Cold War years, but retains powerful underlying strengths in technology, energy, andfood-supply potential, together with dominant military power, reinforced by well over one third of

8 | Japan Center for Economic Research, FY2016 “Asia Research” Reportthe world’s military spending, and a web of alliances.4 Japan’s macro-economic performance has

been modest for a quarter century, following the remarkable growth of the early post-World War II

years. Yet Tokyo’s technological advance has been more dynamic, especially in new materials,

autos, and precision machinery. Japan has also come to play an increasingly important global

diplomatic role in recent years.

This paper does not focus on Korean peninsula developments per se, but a few words

must be said about their important impact on the long-term incentives and behavior of Korea’s

neighbors. South Korea has been growing dynamically, first of all, for over half a century; North

Korea, by contrast, has been economically stagnant—indeed, declining—for the past quarter

century, especially since the Soviet Union’s collapse at the end of 1991. In 1970 the DPRK’s GDP

per capita was roughly $636, more than double the ROK’s level.5 By 2015, it was only $1,013 orjust 3.7 percent of the ROK’s $27,195.6 The DPRK’s recent trade with its neighbors—apart from

China—has been virtually non-existent since the early 2000s, as indicated in Figure II.

FIGURE II: THE DPRK’S STAGNANT TRADE WITH NON-CHINA NEIGHBORS

4The United States in 2015 accounted for approximately 38 percent of world militaryspending. See IISS, “Planned Defense Expenditure by Country 2015,” The Military
Balance, 2016 edition, 19.
5
Kim Cheon Gu, 2015 North Korea Nominal GDP per capita GDP Estimates”, Current Issues
and Tasks, September 28, 2016, Appendix I, pp. 16-20.
6Ibid.
Chapter 1 | Geopolitical Change in Northeast Asia | 9

7000
6000

Millions US$

5000
4000
3000
2000
1000
0
1995

2000
China

2005
Japan

South Korea

2010
Russia2015
US

Source: International Monetary Fund, Direction of Trade Statistics.

Meanwhile, South Korea’s trade with its own neighbors has grown vigorously over the

past two decades, as indicated in Figure III. As in the case of North Korea, South Korea’s tradewith China has grown more rapidly than with any other neighbor, reflecting China’s own explosive

growth. That said, South Korea’s trade with all of its major neighbors has been growing soundly formore than twenty years.

FIGURE III: SOUTH KOREA’S RISING TRADE WITH ALL OF ITS MAJOR

NEIGHBORS

10 | Japan Center for Economic Research, FY2016 “Asia Research” Report

250

Billions US$

200

150

100

50

0
1995

2000
China

2005
US

Japan

2010

2015

RussiaSource: IMF, Direction of Trade Statistics

The ROK’s rising economic strength, compared to the DPRK, leveraged by its “Northern

diplomacy”, has made South Korea more attractive to its regional neighbors, even as North Korea

has grown steadily less consequential. The even more rapid rise of China—and the ROK’s

deepening economic dependence on it, however, has limited Seoul’s ability to shape bilateral ties

with China, or to influence Beijing’s Korea policies. As indicated in Figure IV, South Korea’s

exports to the PRC are now 30 percent greater than the total of the ROK’s exports to the US andJapan combined.
FIGURE IV: SOUTH KOREA’S TRADE WITH CHINA OUTSTRIPS TRADE
WITH THE US AND JAPAN

Chapter 1 | Geopolitical Change in Northeast Asia | 11

160
140

Billions of US$

120
100
80
60

40
20
0
1995

2000
Exports to China

2005

2010

2015

Exports to US and Japan

Source: IMF, Direction of Trade Statistics.

In the political-military sphere, arguably the most important long-term trend in Northeast

Asia, apart from the increasing sophistication of China’s PLA and PLAN, is North Korea’s rising

power-projection capability, leveraged by its nuclear program. This transformation of North Koreancapabilities is depicted in Figure V. In the mid-1980s, North Korea tested its first Scud-B

missile—a reverse-engineered version of Russian originals, with a range of roughly 300 kilometers.

That was soon followed by the Scud-ER, with a range of 1,000 kilometers.7 In 1993, Pyongyang

launched a more advanced Nodong missile, with a range of 1,300 kilometers, into the Sea of

7

Ministry of Defense, Defense of Japan 2016, 22.

12 | Japan Center for Economic Research, FY2016 “Asia Research” ReportJapan. 8 In 1998 the North launched, without warning, the still more advanced two-stage

Taepodong-1 missile into heavily traveled North Pacific sea lanes, with the missile flying overJapan in the process.9

FIGURE V: RANGE OF NORTH KOREA’S BALLISTIC MISSILES

8
9

Ibid., 25.
Ibid.

Chapter 1 | Geopolitical Change in Northeast Asia | 13

Source: Ministry of Defense, Defense of Japan 2016, 22.

During the early 21st Century, North Korea’s nuclear and payload-delivery systemcapabilities have progressed together, in an ominously synergistic combination. In October 2006,

North Korea exploded its first nuclear device; it has detonated four more since then—most recently

in September, 2016. 10 Meanwhile, Pyongyang has tested progressively longer-range delivery

systems—most recently, the Musudan intermediate-range ballistic missile (IRBM), with a range of

10

The four other nuclear tests occurred in October 2006, May 2009, February 2013,
and January 2016. See Ben Westcott and Joyce Tseng, “Timeline: North Korea nuclear
tests versus United Nations sanctions”, CNN, January 20, 2017,
http://www.cnn.com/2017/01/20/asia/north-korea-nuclear-sanctions-timeline/

14 | Japan Center for Economic Research, FY2016 “Asia Research” Report2500-4000 kilometers, first launched successfully, according to Pyongyang, in June, 2016.11 The

Musudan, while it still lacks accuracy, has the range to hit the American strong point of Guam.

North Korea also has tested submarine-launched ballistic missiles, which could represent, withsignificant additional development, an emerging strategic threat to the continental United States. So

could the three-stage variant of Taepodong-2 missiles, with a range of as much as 10,000

kilometers, which are now under development.12

China’s rising political-military capabilities, and the US response, naturally present thegreatest long-term challenge to the status quo in Northeast Asia. Those capabilities are rising

especially in the air and on the sea, fueled by a steadily increasing defense budget, the trajectory ofwhich is indicated in Figure VI. China now has cruise missiles, sophisticated anti-ship weapons,

state of the art SAM-400 anti-aircraft systems, and advanced stealth-fighter aircraft. In 2012 it

also launched its first aircraft carrier, the Liaoning, which circumnavigated Taiwan in late 2016,

although China continues to lack the fully configured battle groups that characterize the US Navy.13
FIGURE VI: CHINA’S RISING DEFENSE EXPENDITURES
11

International observers have been skeptical of the DPRK claims. See “Musudan(BM-25),” Missile Threat: CSIS Missile Defense Project,https://missilethreat.csis.org/missile/musudan/. The BM-25 Musudan is a single-stage
intermediate range ballistic missile.

Ministry of Defense, Defense of Japan 2016, 26.
Jon Sharman, “China sends aircraft carrier ‘Liaoning’ through Taiwan Strait astensions remain high”, Independent, January 11, 2017.
1213

Chapter 1 | Geopolitical Change in Northeast Asia | 15

Annual Growth,
Percent
30
25
20
15
10
5

-10
-15
-20
-25

Source:Author’s calculation based on Stockholm International Peace Research Institute,“Military expenditure data: 1949-2015,” SIPRI Military Expenditure Database, accessed on
January 24, 2017.
America’s response to a rising China has focused on enhancing stand-off militarycapabilities, particularly on the island of Guam. Included in its long-term buildup have been

deployment to Guam of nuclear attack subs, guided missile subs, F-22 stealth fighters, and Global

Hawk reconnaissance drones, as well as enhanced THAAD missile-defense capabilities.14 The

Pentagon is also increasing missile-defense capabilities in both Japan and Korea, while increasing

Shirley A. Kan, “Guam: U.S. Defense Deployments”, Congressional Research Service,
November 26, 2014, https://fas.org/sgp/crs/row/RS22570.pdf.
14

16 | Japan Center for Economic Research, FY2016 “Asia Research” Report

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

-5

1990

0

its deployment of littoral combat ships and pre-positioned equipment in several nations of thewestern Pacific.

Fateful Leadership Transitions and Northeast Asian Geopolitics

China, Russia, Japan, and the United States have all experienced major leadershiptransitions since the spring of 2012 that have fateful impact on regional geopolitics, both today andin the near-term future. In China, the key development was Xi Jinping’s elevation to thechairmanship of the Central Military Commission in November 2012, and his ascent to the

Presidency in March 2013. In Russia, the important change was Vladimir Putin’s re-election to the

Presidency, in March 2012, and inauguration in May 2012. In Japan, Shinzo Abe’s assumption of

the Prime Ministership, also for the second time, was a major regional development. In the US,

finally, change did not come until later—although momentously, when it finally did arrive—in the

Presidency of Donald Trump, beginning on January 20, 2017.

This sort of simultaneous fluidity in Northeast Asian regional leadership is extremely

unusual, and presages major changes in regional relationships. In China, the ascent of Xi Jinping

has already led to a noticeably more assertive set of policies in the South and East China Seas,

including the building of artificial islands, as well as the ambitious Belt and Road Initiative. In thatconnection China inaugurated the Asian Infrastructure Investment Bank (AIIB), with a

Chapter 1 | Geopolitical Change in Northeast Asia | 17

capitalization of $100 billion, as well as the Silk Road Fund, with a capitalization of $40 billion,

and the China-Eurasia Economic Cooperation Fund, founded in December 2015, with acapitalization of $5 billion.

All were established to provide infrastructure across the Eurasiancontinent and beyond.15 Among the AIIB’s first projects was the $8.6 billion Trans-Anatolian

Natural Gas Pipeline in Azerbaijan;16 the Silk Road Fund’s first was a $1.65 billion hydro-power

project, as part of the China-Pakistan Economic Corridor.17

In Russia, Vladimir Putin’s election to a third term as Russian president (the first term

having been during 2000-2004, and the second 2004-2008), has also meant a burst of policy

activism. With great fanfare, Putin launched a new “Look East” policy at the 20th Vladivostok

APEC Economic Leaders’ Meeting in September 2012, encouraging Japanese, Korean, andChinese investment in the Russian Far East, as well as in Siberian energy reserves. In May 2014

and thereafter, following the Russian annexation of Crimea and ensuing Western sanctions, Putin

also forged ever deeper links with China, and met eight times between May, 2014 and the end of

15

China has also proposed a Shanghai Cooperative Organization Development Bank tofinance SCO regional infrastructure. See Donald J. Lewis, “China-CEE ties on new
economic path,” China Daily, November 7, 2016,
http://www.chinadaily.com.cn/opinion/2016-11/07/content_27298818.htm
16
TANAP will be jointly financed by AIIB and the World Bank, with AIIB contributing$600 million. See AIIB, “Azerbaijan: Trans Anatolian Natural Gas Pipeline Project(TANAP) To be co-financed with the World Bank,”
17
See “Commentary: Silk Road Fund’s 1st investment makes China’s words to practice,”
Xinhua, April 21, 2015,
http://news.xinhuanet.com/english/2015-04/21/c_134170737.htm

18 | Japan Center for Economic Research, FY2016 “Asia Research” Report2016 with Shinzo Abe of Japan.

Japan’s Northeast Asian diplomacy, under Shinzo Abe, who assumed office in December

2012, has also grown more dynamic, although clouded by the shadow of history. Abe has

measurably deepened Japan’s dialogue with Russia, initiating a “2 plus 2” series of periodic

meetings among foreign and defense ministers, and meeting frequently with Vladimir Putin.18

In addition to pushing recognition of collective self-defense through the Diet, and decisively

winning general and Upper House elections, Abe concluded in December, 2015 an agreement on

historical issues with Korea, although political instability in Korea impeded implementation of its

provisions. Even relations with China have begun to marginally improve in many respects, despite

serious and continuing maritime tensions.19

Amidst all this intra-regional flux, the inauguration of Donald Trump as US President on

January 20, 2017 has introduced new uncertainties. Shortly after entering office, Trump repudiatedthe multi-lateral Trans-Pacific Partnership (TPP) agreement, that had been a cornerstone of his

predecessor Barack Obama’s Northeast Asia policies. Rather than building broad regional and18

Putin and Abe met a total of four times in 2016: on May 6 in Sochi, as the laststop of Abe’s European visit; on September 2 in Vladivostok, at the Second Far Eastern
Economic Forum; on November 19, on the sidelines of the Peru APEC summit; and on
December 15, during Putin’s official visit to Japan. See Prime Minister of Japan and
His Cabinet, The Prime Minister in Action, accessed January 28, 2017.
19
Abe and Xi have me at least five times since late 2013, mainly on the sidelinesof various G-20 and APEC multilateral summit conferences.

Chapter 1 | Geopolitical Change in Northeast Asia | 19

global institutions transcending national interest, he was clearly intent on using the leverage ofAmerica’s market and global standing to forge narrower bilateral deals reflecting concrete USinterests, with such key national players as Japan, Russia, and China. Trump’s early appointmentsof Exxon CEO Rex Tillerson as Secretary of State, with his extensive Russian ties, as well as

appointments of Iowa governor Terry Branstad to China and business consultant William Hagerty

to Japan, all reflected this strategy of seeking concrete advantage through bilateral negotiations,personal contacts, and local expertise.

To give these representatives with local expertise further leverage, the Trumpadministration has also established a distinctive network of trade-policy specialists and institutions.

The new National Trade Council, headed by University of California Irvine Professor Peter

Navarro, is focusing on changes in trade and investment with China, based on Navarro’s own stark

view of China’s emerging challenge. 20

US Trade Representative Robert Lighthizer, a steel

industry lobbyist, is likewise targeting China’s massive billion trade surplus of over $330 billion

with the US, and ways of repatriating US job-creating investment in China.21 Hawkish figures such

Peter Navarro and Greg Autry, Death by China: Confronting the Dragon – A Global
Call to Action (Upper Saddle River, NJ: Pearson Prentice Hall, 2011).
20

21

According to USTR, the US goods and services trade deficit with China in 2015 was$336.2 billion. See Office of the United States Trade Representative, “The People’s
Republic of China,” accessed January 24, 2017,https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china

20 | Japan Center for Economic Research, FY2016 “Asia Research” Reportas Navarro and Lighthizer could well indirectly encourage Northeast Asian governments topromote cooperative projects orchestrated by more “dovish” figures, such as Branstad and Hagerty,

in an effort to deflect demands by the hawks for protectionist steps.

IN CONCLUSION

The political economy of Northeast Asia has evolved remarkably since the end of theCold War, even though the region’s “organization gap” has largely persisted. China, in particular,

has grown rapidly, even as Russia has receded sharply in relative terms. Today China’s economy isover eight times the scale of Russia’s, growing faster, and much more deeply entwined with both

North and South Korea. China has much more leverage with the two Koreas, relative to Russia,

than was true in Cold War days. The PRC also has powerful leverage with Russia itself, enhanced

by low energy prices worldwide, and Crimea-related Western sanctions. Accordingly, it is harderfor North Korea to play the two continental giants against one another today, to gain advantage,

than it was two or three decades ago. China holds much more decisive leverage, although not

absolute, leverage with the DPRK than was true during the Cold War of the 1980s.

Given Russia’s difficult—and in many ways worsening—economic circumstances, andvulnerability to Chinese suasion, Moscow’s ability to shape events on the Korean peninsula islargely limited to the political-military realm- especially its willingness or refusal to provide North

Chapter 1 | Geopolitical Change in Northeast Asia | 21

Korea with the technical, diplomatic, or modest economic assistance to resist Chinese or Westernpressure. Together with China, Russia does border North Korea, and thus could serve as animportant secondary partner in efforts to influence North Korean decision-making, although the key

is clearly China.

American direct ability to shape events on the Korean peninsula has always stemmed

more from its political-military presence in the ROK than from its economic relationships in theregion, or its geographical proximity. Financial flows from the US after the Korean War, and fromJapan after 1965, did play a crucial early role in South Korea’s economic development. And therapid pace of South Korean growth since the late 1960s, funded from both the US and Japan, hasdecisively helped to quietly reshape the North-South balance of geo-economic power, as well as

China’s incentives in its relations with the two Koreas. This transformed geo-economic equation,

however, has not produced much meaningful political-economic change in North Korea. Nor has it

prevented a steady improvement in North Korean nuclear and delivery systems that is gradually

coming to present a significant threat to both US military deployments in Northeast Asia, and also

to US allies in the Pacific, most notably Japan.

As the Trump administration begins to seriously review the changing Northeast Asian

geo-political environment, it must inevitably recognize three emerging realities: (1) North Korean

22 | Japan Center for Economic Research, FY2016 “Asia Research” Reportweapons of mass destruction are beginning to present an increasingly serious challenge not only to

US allies in Northeast Asia, but also to the United States itself, making the issue increasingly

urgent; (2) The key to dissuading North Korea through non-military means remains more in thehands of China than of any other nation; and (3) A cooperative approach, pooling the respective

capabilities of China, the US, and to a limited degree Russia and Japan, is most likely to yield

constructive results. The early inclination of the Trump administration to enter a more serious

dialogue with Russia, building on the overtures that Japan is also making to Moscow, could thus

potentially enhance prospects for peace on the Korean peninsula. Both the United States and Japan,

however, will also need to find a way to engage China more actively in moderating North Korean

behavior, which could well reduce their ability to pressure China on trade and security issues

outside the Korean peninsula as well.

Chapter 1 | Geopolitical Change in Northeast Asia | 23