Stephan Haggard on the Economic Implications of Covid in North Korea

Stephan Haggard is the Lawrence and Sallye Krause Distinguished Professor at the School of Global Policy and Strategy (formerly International Relations and Pacific Studies, IR/PS) at the University of California, San Diego (UC San Diego). He received his Ph.D. in political science from the University of California, Berkeley in 1983 and taught in the Department of Government at Harvard University from 1983 to 1991 before joining the faculty of GPS where he also serves as Director of the Korea-Pacific Program at GPS. His research interests center on the international and comparative political economy of development, with particular emphasis on East Asia. Since 2005, he has been the editor of the Journal of East Asian Studies. From 2011 to 2019, he ran the Witness to Transformation blog. From 2015 through 2019 he had a regular column at Joongang Ilbo. Prof. Haggard has served on the boards of the Pacific Rim Parks Foundation, which is committed to building student-designed and built parks in the countries bordering the Pacific Ocean, and Academic Exchange, which promotes academic dialogue with Israel and Palestine.tions.

Jessie Miller CMC '23 interviewed Dr. Stephan Haggard on September 12, 2021.
Photograph and biography courtesy of Dr. Stephan Haggard.

During Covid, the DPRK has largely engaged in self-enforced isolationism, to the detriment of its economy. What motives may lie behind this extreme isolationist strategy? Is economic recovery possible if the DPRK does not avert course?

When considering the motives for extreme isolation, there is an important debate to be had over whether it is entirely irrational. The rational component is that the DPRK health care system and population are extremely vulnerable. It is quite possible that the leadership made the calculation that unless they shut themselves off from China, the effects of spread in the DPRK would be devastating. Addressing the potentially irrational component, there are hints that the North Koreans don’t completely understand the mechanisms of transmission. For example, there have been reports from traders along the border that the government in North Korea has shown an interest in quarantining shipped goods and not just the movement of people, apparently under the belief that Covid might be transmitted from objects. Those quarantines are quite long and are really interrupting trade.

Also worth emphasizing is that we do not have very good data on North Korea’s trade with China because some portion of it is taking place offshore. We know about the wholesale evasion of sanctions in coal exports and oil imports that are done through ship-to-ship transfers. Still, we don’t have a good understanding of the magnitude of this illicit trade. While the border trade is closed and has affected a number of commodities, it is possible that there is unobserved trade that is keeping the DPRK afloat.

The Chinese potentially have an incentive to lie about trade with the DPRK because of their commitments under a series of UN Security Council resolutions, which include outright bans on a number of North Korean exports. To the extent that they are violating those commitments, they have reasons not to fully report their trade. The story is likely more complicated, though, because China may just be turning a blind eye to activities that it has chosen not to control. China is a pretty powerful authoritarian regime and if it really wanted to shut down all trade with the DPRK, the leadership could probably figure out a way to do it. That said, to the extent that they are not investing a lot of resources into interdiction, it is possible that trade is getting through in ways that the Chinese authorities are not fully aware of, though they may be aware of sanction evasion in a general sense.

At a Politburo meeting in June, leader Kim Jong-un openly admitted that the country faces a “great crisis” in terms of its pandemic response. Was this acknowledgement remarkable for Kim Jong-un, and what strategic aims could lie behind such a statement?

The Eighth Party Congress document that we have notes that North Korea faces objective and subjective constraints. That language points to the fact that North Korea believes—quite rightly--that there are external factors that it can’t control. Those factors include the sanctions, Covid, and weather-related events. The report is very interesting in saying that there are also subjective shortcomings; by subjective shortcomings the leadership means the behavior of the party or of the public itself.

Note that such a formulation doesn’t place responsibility on the leadership; rather, it suggests that the party and party cadre are at fault. Over the summer there were some purges at fairly high levels in the military. We don’t know exactly why they occurred but there have been references to a “grave event” in which military personnel had not been appropriately vigilant. North Korea faces extreme external constraints, but it is also acknowledging that it has its own management problems to resolve.

Domestically, has Covid and the resulting economic hardship been a catalyst for any civil unrest in the DPRK? Historically, how have citizens responded to similar worsening economic conditions resulting in food and market shortages? What tactics are most effective at minimizing dissent in the DPRK?

There is not any evidence from sources such as DailyNK or NKNews that suggests protests. It is important to keep in mind that a public political protest is a high hurdle, and there are other forms of everyday resistance in which North Korean citizens are almost certainly engaged, particularly with respect to market activity. Remember that the sanction shock had already caused trade to fall off quite dramatically before January 2020. We know that during periods of shortages the market is likely going to be particularly active, because there are significant benefits to anyone who can provide goods.

There is reason to suspect that a shortage phenomenon like that is occurring. This can be monitored by looking at trends in prices. Still, the story is puzzling. There were some price spikes in the middle of the year, which would be consistent with shortages. Yet the spikes have moderated, and given that the data is relatively trustworthy, this raises interesting questions as to why. There are several possibilities. First, it is possible that there is more trade taking place between the DPRK and China than is visible because of offshore trade, ship-to-ship transfers and smuggling. The other possibility is that the government is relying on the release of stocks, either physical stocks of commodities or financial reserves, to moderate prices.

Do any specific stakeholders or industrial sectors have meaningful sway within Kim Jong-un’s regime? How might they have affected Covid policy in the past, and do they have any leverage to make change moving forward?

There is an important distinction that needs to be made between two sorts of “having sway.” One form of “having sway” is to be formally represented in some way within decision-making bodies. In that case you are influential because you literally have a seat at the table. Research I did at the Korea Economic Institute with a former graduate student, Liuya Zhang, suggests that the composition of the Politburo has actually shifted in the last couple of years in the direction of the military. If anything, it seems like technocratic representation has dropped.

There is also “having sway” in the sense that the government is acting strategically, in a context in which market players control resources and have to be accommodated, at least to some extent. There is a lot of debate about the Eighth Party Congress documents because, at one level, it appears that the Congress endorsed standard state planning. On the other hand, it's not clear that the regime has really reversed the acquiescence to the market that Kim Jong-un has continued since coming to power. The government is not being particularly accommodating to technocratic factions within the elite because there is a lot of emphasis on the military. It’s not clear that the government fully understands what a more market-oriented reform process would look like, which is part of the problem.

Chinese data indicate that the DPRK's trade with China plunged more than 80% last year, and the DPRK has reportedly rejected 3 million doses of China’s Sinovac vaccine​​. How has the pandemic affected the broader relationship between China and the DPRK? Do we know what is driving North Korea’s behavior in this relationship?

This question goes to the macroeconomics of the bilateral relationship between China and the DPRK. When you use numbers like an 80% drop in trade, it is important to distinguish between the export and the import side. The UN Security Council resolutions that contain the outright bans on North Korean exports are responsible for driving most of the decline in trade between the two countries. What is interesting is that prior to the onset of Covid, Chinese exports to the DPRK dropped nowhere near as sharply as their imports did. As a result, the current account deficit that the DPRK was running was getting larger and larger up until the Covid shutdown: the DPRK was importing more from China than it was exporting. That raises the question of how that trade deficit is financed and whether China, up until February 2020, was in effect financing this current account deficit.

In some ways it is possible to be sympathetic with China’s current position, because North Korea is sitting right on its border; the Chinese do not want North Korea to collapse. One way that they have managed to help keep the regime afloat is by, at least up until 2020, continuing to provide crucial exports to North Korea. There is reason to suspect that is what they are effectively doing with oil right now.

With respect to the decision to refuse the Chinese vaccine, there may be some irrational elements to the leadership’s view. Standing in North Korea’s shoes, it seems rational to take whatever vaccine would reduce the probability of Covid spreading, even if the Sinovac vaccine isn’t particularly effective. Some stories have suggested, however, that there is concern about possible side effects of the vaccine, which does not seem supported by the data, and it is possible that reluctance comes from having any human contact with China, however minimal.

Recent reports have indicated that DPRK agents attempted to steal Covid vaccine technology from Pfizer. Should the international audience interpret this solely as an act of desperation or may other motives been at play?

This can be interpreted as part of a broader cyber theft campaign. The DPRK is interested in securing access to a variety of technologies that may be useful to it in one capacity or another. If the North Koreans can figure out how to reverse engineer a vaccine that works, they do have manufacturing capabilities in the chemical sector.

North Korea has a long and quite incredible history of being able to take foreign technologies and reverse engineer them for domestic use, particularly in the missile sector. The cyber dimension of North Korea’s broader strategy for sanction evasion is quite significant. It has involved bank theft, attacks on cryptocurrency exchanges, and stealing technologies to advance the development of their weapons programs. This is likely happening in more commercial domains as well. The Pfizer incident is just another example of intellectual property theft.

How might the weakening state of the DPRK’s economy influence international approaches to DPRK sanctions and denuclearization negotiations?

Over the course of 2020, the Trump administration quietly started to relax its objections to exemptions to UN Security Council resolutions for humanitarian purposes. At one point, former Secretary of State Mike Pompeo even pointed to the fact that the United States was doing this in order to jumpstart negotiations. The Biden administration has continued that policy, although the demands from the NGO community have been extremely limited due to constraints on funding. Aid to the DPRK is not a high priority. This can be understood in the general context of aid fatigue that is occurring globally, but North Korea has been hit particularly hard.

The United States and the international community have not been as forthcoming as they could have been. The humanitarian problems in the DPRK prior to Covid have only gotten worse and we simply don't have sufficient information. This lack of information is directly related to Covid because embassy personnel and NGO and UN personnel have mostly decamped, from diplomats in the Russian Embassy to institutions that are represented in the UN Office for the Coordination of Humanitarian Affairs. These external observers have simply been hollowed out.

In terms of denuclearization negotiations, there has been no movement on the part of the North Koreans to get back to the talks. Biden has been relatively forthcoming in saying he is willing to have a set of discussions without preconditions. The DPRK has also shown little interest in having conversations with the South Koreans. Reading the party documents leads to the conclusion that the North Koreans have become very pessimistic about the chances that they are going to get anything meaningful out of the United States, particularly with respect to sanctions relief. South Korea is also hemmed in by nature of its own commitment to the UN Security Council resolutions and by American skepticism about various forms of engagement. If that is the case, then the current impasse has an external and internal dimension. There is no evidence on the part of the Biden administration that it is willing to give large-scale sanction relief in advance of North Korean concessions. There also is no apparent interest on the part of the North Koreans in making the kind of moves that would enable the United States to grant interim sanction relief.

It’s not entirely fair to put all the blame on the DPRK. You could argue that the United States should be more forthcoming. One idea that merits support is enabling the South Koreans to do more by, for example, granting some sanctions relief bilaterally, starting with a larger humanitarian presence and perhaps expanding to regular trade or tourism.

Jessie Miller CMC '23Student Journalist

(stephan), CC BY-SA 2.0 <>, via Wikimedia Commons

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