North Korean economy keeps humming despite ever-tighter sanctions

Oren Dorell | USA TODAY

WASHINGTON — Despite years of ever-tighter international sanctions, North Korea's economy has proven resilient and seems to have fended off the suffering President Trump has sought to halt the country's nuclear program.

"The North Korean economy appears to be beating sanctions thanks to Chinese aid and trade, as well as the re-allocation of conventional defense spending to the civilian economy," said researcher Henri Féron with the Center for Korean Legal Studies at Columbia University School of Law.

This year, North Korean leader Kim Jong Un celebrated the 105th birthday of his grandfather and North Korea's founder, Kim Il Sung, by opening more than 3,000 units in a housing complex in the capital, Pyongyang, Féron wrote in 38 North, which provides detailed satellite imagery and analysis of what’s happening in the isolated, secretive country.

Economists and others monitoring North Korea say it is difficult to measure the impact of sanctions in such a closed society, though some negative consequences have been noted.

After U.N. sanctions targeted fuel deliveries to North Korea this year, numerous gas stations that opened after Kim took power in 2011 closed starting in April, according to economist Curtis Melvin of the U.S.-Korea Institute at Johns Hopkins School of Advanced International Studies.

Trade statistics from the Chinese customs office show that trade with North Korea grew 3.7% in the first three quarters of 2017, compared to the same period last year, according to CNBC. China's imports from North Korea fell 16.7%, but exports to North Korea jumped 20.9 %, according to the data.

China is North Korea's closest ally and accounts for 90% of its trade.

In another sign of stability, the black market value of the North Korean currency has remained around 7,000 to 8,000 won to the U.S. dollar since Kim came to power with a promise to reform the economy, according to researcher Kent Boydston of the Peterson Institute for International Economics in Washington.

Likely one reason the N Korean won and rice price so stable: increasing dollarization in North Korea. Most assets are now held in $ or yuan. See https://t.co/xNUZqw6Ejx pic.twitter.com/467EQf2Izw — Kent Boydston (@KentBoydston) October 5, 2017

That "means there’s no shortage of imported goods or of foreign currency needed to buy them," said Melvin, whose assessments rely on satellite imagery and reports by foreign visitors.

The U.S. Treasury imposed new sanctions Tuesday on a number of North Korean shipping companies and Chinese trading firms, a day after Trump relabeled North Korea a state sponsor of terrorism.

The terror designation is part of what Trump calls a maximum pressure campaign to persuade Kim to halt his pursuit of nuclear weapons and intercontinental ballistic missiles that could reach the U.S. mainland.

Several countries, such as Sudan and Singapore, announced in recent days plans to cut trade or diplomatic relations with the North.

The terrorism designation enables the U.S. Treasury to sanction additional foreign entities that provide North Korea equipment that could be used for military purposes.

More: U.S. imposes new sanctions on North Korean, Chinese firms

More: Trump declares North Korea a state sponsor of terrorism

To minimize the impact of sanctions, North Korea has stockpiled goods, and possibly cash, and its factories produce much of what its citizens need, reducing dependence on imports, Melvin said.

The U.N. Security Council imposed new sanctions in September after North Korea launched a series of ballistic missile tests and detonated its first powerful hydrogen bomb under a mountain. The sanctions cut crude and refined oil exports to North Korea by 30%, ban natural gas sales and limit refined petroleum products such as gasoline to 2 million barrels a year.

Anthony Ruggiero, a North Korea analyst at the Foundation for Defense of Democracies, an anti-terrorism think tank, said he has seen reports that ship traffic between China and North Korea appear to be decreasing. He said that data should be treated with caution because ship operators have been turning off transponders to make the vessels more difficult to track.

"The Chinese are still trying to decide whether they're going to implement the sanctions they've signed up for," Ruggiero said.

The apparent fuel shortage causing gas stations to close is likely to have an impact on travel within North Korea, and on open-air markets that sprang up after Kim took power around a new bus terminal outside Pyongyang, according to Melvin. Satellite imagery around the terminal indicates the market stalls apparently serve farmers and other producers selling unregulated goods to city merchants.

Other aspects of North Korean and Chinese economic activity are hard to measure, as well. One unknown is how much foreign currency North Korea has to import foreign goods before scarcities start affecting the population.

“Given they’ve stockpiled everything forever, it wouldn’t surprise me if they’ve stockpiled foreign currency as well,” Melvin said.

And after decades of a state-run economy and rampant corruption, North Korea has huge inefficiencies that can be eliminated to ease the pain of sanctions. North Korean authorities, for example, could allow entrepreneurs to start new businesses, Melvin said.

That means the sanctions could wind up making the North’s moribund economy a bit healthier. “It’s possible that (increased) isolation facilitates domestic economic reform,” he said.

More: North Korea won't strike U.S. first despite inflammatory threats, experts say

More: China sending special envoy to North Korea days after Trump's visit

More: North Korea says U.S. should oust 'lunatic old man' Trump from power