Carry on, Korea: Is China smart, or just lucky?

It’s time to buy Asian stocks. In fact, last Friday was the time to buy Asian stocks. Outside of Japan, a relief rally buoyed Korean, Chinese  and Southeast Asian equities, with the bellwether Hang Seng China Enterprises Index jumping 1.27%. The markets are right and the pundits are wrong.

The comedy of errors that ensued on North Korea’s July 28 ICBM test is nearly over. American policy is firmly in the hands of military men – Generals Mattis, McMaster and Kelly – who do not believe that America has a viable military option of any kind. The White House hardliners are in trouble, and a news outlet close to the West Wing is reporting that Chief Strategist Steve Bannon is in the doghouse. Beijing is happy to horse-trade with Washington, offering cooperation in pressure on the Pyongyang regime in return for understanding on other matters, including but not limited to trade. In the classic age of British film comedy, the story could have been scripted as “Carry On, Korea.”

If Beijing had scripted the North Korea crisis, it could not have gone better for China. American standing in the region has declined, the hardliners in Washington are having a time out, and Beijing’s standing as mediator and peacemaker has risen considerably. There is no evidence, to be sure, that the events of the past week played out according to a Chinese plot. Prevailing wisdom is that Kim Jong-un is crazy enough to unleash a war if backed into a corner, and far too crazy for Beijing to control.  Of course, that is what the North Korean leader wants us to think, and perhaps what Beijing wants us to think, too. As Hillary Clinton said, “What does it matter now?” China won this one hands down.

Western intelligence services don’t have a window into Pyongyang, so we can only guess what is happening. Nonetheless, we can say with an acceptable margin of error that the North Korean crisis is over for all intents and purposes; that military options are not on the table; that Washington is prepared to tolerate a small North Korean arsenal of nuclear weapons and missiles to deliver them; and that Beijing is the overall winner.

As National Security Adviser H.R. McMaster said on American television Sunday morning, “we’re not closer to war than a week ago.” Despite President Trump’s “fire and fury” and “locked and loaded” remarks, the US never was close to war with North Korea, as every person in a responsible position at the US Department of Defense is happy to explain. There simply is no military option: If the United States conducted a limited conventional strike on North Korea, North Korea would fire an artillery barrage at the South Korean capital of Seoul, just 35 miles from the border. A nuclear strike on North Korea could destroy the regime and silence its artillery, to be sure, but the fallout would kill a lot of South Koreans as well.

North Korea’s regime may be crazy, but its July 4 and July 28^th tests of allegedly nuclear-capable ICBM’s were well-crafted, measured provocations. They represent no immediate threat to the United States, but a possibly serious threat in the medium term. Pyongyang left the Americans to debate whether it can tolerate a North Korean that has a few nuclear weapons and ballistic missiles, or cannot tolerate any such capability at all. Or perhaps it can tolerate it as long as the small arsenal does not grow into a big one.

It also leaves the Americans wondering whether the North Koreans could have produced the missiles without Chinese help. The missiles are believed to be based on Russian designs, with some additional assistance from Pakistan. Critical components of North Korean missiles, Western intelligence services learned after the South Korean navy retrieved sections of a North Korean satellite booster rocket earlier this year, are foreign-made and sourced through China, as Joby Warrick reported in the Washington Post April 13. China in any case subsidizes the North Korean economy through cut-price fuel.

It isn’t clear whether the North Korean missile program would exist without Chinese help, or at least acquiescence in smuggling crucial components through Chinese firms. The North Korean economy certainly depends on Chinese help. Nonetheless, China distanced itself from Kim Jong-un’s nuclear program and deplores his most recent provocations.

The ambiguity of China’s position gives it all the more leverage with Washington. China can claim just enough influence in Pyongyang to extract concessions from Washington in return for its help in containing the North Korean menace, while dissociating itself from the North Korean regime’s actions as such. Whether or not Beijing designed it that way, it’s a lucky place to be.

For example: President Trump was scheduled to deliver a long-awaited policy address on trade with China on Aug. 4, drawing a line in the sand over theft of intellectual property, as well as Chinese subsidies of steel and other export goods. White House planners expected the speech to begin a prolonged wrangle with Beijing over China’s $350 billion trade surplus with the United States. The White House was considering a number of possible measures to reverse the migration of high-tech industries from the United States to China, out of national security as well as economic concerns.

The speech was cancelled on the night of Aug. 3. According to Reuters, the priority shifted to persuading China to vote with the United States at the UN Security Council on North Korea. Obligingly, Russia and China supported an American resolution to impose new trade sanctions on North Korea Aug. 6, and President Trump hailed the vote as an American diplomatic victory.

Trump made a major tactical blunder by threatening military action against the North Korean regime without, of course, specifying precisely what tripwire would bring about such action. After making a threat that the United States cannot practically act upon, there was only one way for Washington to go, which is backward. Administration officials, including National Security Adviser McMaster, have been at pains during the past few days to downplay the use of force.

China can offer its good offices to rein in the seemingly irrational rulers of Pyongyang, while extracting concessions from the United States in return. Xi Jinping doesn’t want a war, of course. Neither does Kim Jong-un, whose objective is regime survival. By acting as China’s cat’s-paw, Kim has made himself all the more useful to Beijing. And by drawing out the US president into a war of words, he has elevated his international stature. That’s a win-win for Beijing and a lose-lose for Washington.

Of course, Trump could go Xi one better, and use the Korean crisis as the pretext to abandon America’s longstanding commitment not to build a global ballistic missile defense system, an action that Beijing and Moscow would view as a strategic game-changer. As Angelo Codevilla notes acidly, “Keeping America undefended against major missile threats has been very much our policy. Since the 1970s, the arms-control community and its allies in Congress have effectively policed Pentagon programs to make sure that they would not produce capabilities to defend America.”