Donald Trump has said he is willing to go to war with North Korea. “They [North Korea] will be met with fire, fury and frankly power the likes of which this world has never seen before," he told the world.
His remarks, made on 8 August 2017 from a Trump New Jersey golf club, were incendiary and reckless but the strength of feeling behind them was clear.
Any nuclear war in the Asian peninsula would inflict horrific loss of life: 2.1 million could die and another 7.7 million could be injured in Seoul and Tokyo attacks, according a recent 38 North report. A single nuclear detonation over Seoul would likely kill 800,000.
But what would a US-North Korea nuclear strike – the North Koreans insist they will never give nuclear weapons up – do to world stock markets and trading? Which sectors would be hardest hit? And which industries might benefit from any re-building program, post-nuclear strike?
Massive and unknowable ballistic consequences
It’s impossible to back-test or war-game this scenario so it’s not a reasonable question. First, though, some sifting of the ground.
“It [a nuclear hit] would be cataclysmic for global markets,” says Jon Horton from financial planners Chamberlain de Broe. “It’s been 70 years since the last global nuclear conflict. You do have gold as a global store of value. But Bitcoin is out there now too. In an absolute crisis, how would both behave?”
There would be certainly a retreat into sovereign bonds; the nearby Japanese market would likely go into freefall he thinks. “If you irradiate the Japanese peninsula, how would that look?”
A nuclear strike on a first-world economy would have massive consequences for almost all industries: global trade lines are now so inter-connected, including many just-in-time supply chains.
South Korea is now the world’s ninth biggest economy. It accounts for 1.9% of global economic output. Yet its contribution to every-day technological products used across the world is immense.
Supply chain fear
Around 40% of all liquid crystal displays are made in South Korea and 17% of semiconductors. South Korea is home to major car makers Hyundai and Kia and a big ship building industry.
Much of South Korea’s infrastructure – water supply, electricity, roads, sea and airports – would be severely compromised if not wiped out.
History offers few clues to a potential conflagration. The 1950-53 Korean War saw 1.2 million South Korean deaths and the value of its GDP collapse by 80%. But it was not a nuclear war.
Fast forward to late 2017 and the unknowables with Donald Trump and Kim Jong Un are more or less limitless. It is impossible to reason with both – at least that is the perception.
It is also impossible to predict when war might end, given the potential for escalation as China, and perhaps Russia, are inevitably drawn in. The location of North Korean missiles – including submarine-launch and mobile road-launch – is increasingly sophisticated.
Huge US and Japanese cost
South Korean capital Seoul contains 20% of the country’s population and would likely be a first target (as well as Tokyo, possibly). Seoul is 35 miles from the North Korean border – the distance from central London to High Wycombe, Hertfordshire.
Assuming Seoul took the first hit, the economic impact would be rapidly felt in the US, pushing up borrowing costs. At its peak, in 1952, the US government was spending the equivalent of 4.2% of its GDP fighting the Korean War, Capital Economics estimated recently.
“The total cost of the second Gulf War (2003) and its aftermath,” says Capital Economics, “has been estimated at US$1trn (5% of one year’s US GDP). A prolonged war in Korea would significantly push up US federal debt, which at 75% of GDP is already uncomfortably high.”
The cost of reconstruction would be massive with the US, South Korea’s major ally, likely to shoulder some of the expense (Capital Economics estimates it takes two years to build a semi-conductor factory from the ground up).
The cost of living for some basic raw material supplies in the West – steel and oil, for example – would climb as seaborne tanker trading routes would likely change.