US: Trump Administration leads a confrontation with North Korea – BBH

Analysts at BBH suggest that the cycle of sanctions, recriminations, and provocative actives continues as the Trump Administration leads a confrontation with North Korea.  

Key Quotes

“The US announced yesterday a new round of sanctions on North Korea.  Reuters reported that the PBOC has instructed its banks not to take on new North Korean clients and to begin unwinding existing relationships.  While the implementation and enforcement will be scrutinized, the measures are very much supportive of the US efforts.”  

“Still, there are serious doubts, which some other countries have already expressed, that sanctions and economic and financial depravity will get North Korea to abandon its nuclear efforts.  For North Korea, this is an existential issue.  If it were not from credible deterrence, it fears and not completely unfounded, that there be a more sustained effort to topple his regime.  We have suggested that a credible deterrence requires not only first strike capability, but also the ability to unleash a second strike if it is hit first.”  

“Up until now, North Korea has tested its hydrogen bomb on its territory.  On the escalation ladder, there are many rungs.  One of them is to detonate a hydrogen bomb beyond its territory, like in the Pacific as the US has done in the past.  This appears to be what North Korea is now threatening.”  

“As we have noted before, treating the confrontation with North Korea like a version of the Cuban Missile Crisis, which requires urgent action, is not the only precedent on which to draw.  The other one would be the Iranian experience.  Sanctions were part of what brought Iran's nuclear ambitions to the negotiating table, but the key point was that there were negotiations, in part because a military confrontation could have been so devastating.   Churchill once famously quipped that the Americans can be trusted to do the right thing after they have exhausted all the other alternatives.  North Korea has, it would appear, convincingly and credibly demonstrated that it will sacrifice the well-being of its people to preserve its regime.”

“Still, the newest round of hyperbolic claims, sanctions, and threat of provocative actions is a modest market force today.  Gold and the yen are paring this week's losses.  US Treasury yields have lost the upside momentum that lifted the 10-year yield from nearly 2.0% on September 8 to almost 2.29% on September 20, after the FOMC meeting.  It is now a little above 2.25%.  Gold is up about 0.5% on the day, which trims its loss for the week to 1.75% (@ ~$1297).”