Many experts are predicting that the upcoming US-North Korean summit will end in a diplomatic train wreck featuring two Odd Couple heads of states, neither of whom most people can imagine leading a country with nukes: the cherubic Millennial dictator of the world’s most repressive, isolated and poorest country and the first US president who never served in any capacity in a government position whose personality and leadership run counter to all his predecessors. Either it’s the savviest planned summit ever or indeed a diplomatic train wreck waiting to happen. If neither side had nukes, this scenario would be laughable.
I believe that the US and North Korea share similar objectives which is why this summit is bilateral, not multilateral. North Korea strongly desires to step out from China’s shadow to be seen and treated as a sovereign country with an independent foreign policy, not as China’s political puppet.
Many experts are speculating whether the US will request or demand North Korea’s de-nuclearization in exchange for a de-escalation of alleged threats towards North Korea by the US. Yet I believe all this “chatter” is a clever misdirection for the summit’s real objective: the opening of trade talks. As always, it’s simply “follow the money.”
According to the Financial Times article dated 31 March 2018, North Korea: Why Kim Jon Un came in from the cold, North Korea is seeking greater economic reforms to further decentralize its economy. Trade talks with the US would accelerate this process and eliminate China as a sole source provider.
Not only are China and North Korea joined at the hip geographically but also with respect to leadership, since both President Xi and Kim are rulers for life. However, communism then and now was never an indelible monolithic brotherhood relationship. Here are two major notable examples:
- The big fallout between China and Russia during the 1960s resulting in several border clashes.
- The border clash in 1979 between historical enemies China and Vietnam.
This strongly infers that China’s credibility is weak with respect to its communist border neighbors.
For the US, a successful initial bilateral summit with North Korea would put a wedge between China and North Korea just as Nixon successfully accomplished with his China visit 1972 when he put a wedge between China and the Soviet Union.
Even if no agreement is reached – officially - the summit itself represents a stepping stone towards future discussions even at lower governmental levels as well as the development of a strong backdoor relationship which will diminish China’s leverage on the Korean peninsula.
Additionally consider the timing of Kim’s invitation to Trump occurred soon after presidential term limits were abolished making President Xi legally ruler-for-life if he so chooses. Leading up to his lifetime leadership confirmation, President Xi has been crafting his own cult personality, ironically mimicking Kim, his younger counterpart, in a public relations effort implying “China is President Xi. President Xi is China.”
Kim himself is aggressively undergoing a personal rebranding by convincing the world that he’s a “normal” dictator with a stable psychological profile and loyal government support. Not only did he leave North Korea for the first time, he was accompanied by a coterie of high-level officials which means he’s secure that those left back in Pyongyang could be trusted during his China visit.
The secret two-day meeting between China’s President Xi and Kim fueled speculation as to what was discussed. Shockingly, absolutely no one raised the critical question: “Who made the call?” In other words, who called whom to request a meeting? If it was President Xi, then China is clearly concerned and preferred a face-to-face meeting to avoid others from tapping into the conversation. If Kim requested the meeting, then North Korea is following a China agenda.
I believe it was the former featuring an agitated President Xi trying to dissuade Kim from “doing anything stupid.” Supporting my opinion was a series of photos released by Reuters two of which showed them shaking hands. The exceptionally stark contrast in attitudes was evident with an ebullient younger Kim and a dour elder Xi. The Financial Times article dated 30 March 2018 explains a far deeper friction.
Historically, North Korea was always an ally of convenience for China. Xi’s displeasure could be the reason why China froze exports of critical raw materials far and above the existing UN sanctions to North Korea just prior to Kim’s meeting with Xi as articulated in the 31 March/1 April 1, 2018 Financial Times article “China Froze Exports to North Korea in Run-up to Kim’s Meeting With Xi.”
The summit itself will produce the inevitable disagreements, non-negotiable items, and misunderstandings as with any summit between two heads of states. However these standard challenges will be magnified exponentially because of the aforementioned issues.
Whatever the US-North Korean summit achieves or doesn’t achieve, it’s one trigger of a chain of near-term geopolitical triggers, any one or all of which could produce fierce global market volatility:
- North Korean-South Korean summit meeting – late April
- North Korean-US summit meeting - May
- Possible US scuttling of nuclear agreement with Iran - May
- China-US trade talks
- OPEC meeting in June – possible discussion of “exit strategy” from present production quota agreement and increasing Saudi Arabia-Iranian animosity
Investment Strategy
Because of the high-level of uncertainty with these forthcoming events in a short time period, the volatility and uncertainty in the global markets may be profound. For those seeking safe harbor, gold and US government securities will be the usual go to option.
For this reason I strongly recommend to add gold and short-term US government securities to your portfolio as the geopolitical tectonic plates shift in the coming weeks and months.
