North Korea has tested a series of ICBMs in the past six months. Photo: Reuters / KCNA

The year 2018 is likely to prove a critical juncture in North Korea-US relations. At some point during the year, Pyongyang will decide whether to conduct an atmospheric nuclear detonation as the final proof of its nuclear deterrent capability.

In Washington, a decision will be made as to whether the cost of “accepting” a nuclear North Korea and shifting to an intensified containment strategy exceeds the cost of military action to prevent the final phase of the North Korean program.

These two decisions are intimately linked. Each is based in part on perceptions of the other, but mostly on their own strategic considerations.

The complexity of the decisions is compounded by the ease with which each side appears to misunderstand the other’s strategic intent. History is full of significant decisions being made on the backs of willful or unintended misreads of the intentions, capabilities and limitations of competitors and partners alike.

At times the result is missed opportunity, diversion of resources and attention, or short-term crises that pass. At other times, it can have monumental implications, pushing nations toward conflict. In the current case, well-thought-out decisions based even in part on a misread of the other’s perception and likely response could, at the extreme, lead to a nuclear exchange.

The cost of even conventional conflict is high, beyond the extremely high casualty estimates and massive infrastructure damage to the Greater Seoul area.

Five of the six likely participants in a conflict are among the top 12 economies in the world, based on gross domestic product, with the United States, China and Japan the top three. South Korea alone produces more than 60% of the world’s supply of memory chips, 40% of LCD (liquid-crystal display) screens and nearly 20% of semiconductors; even a disruption to this supply chain would ripple through the global economy.

The Greater Tokyo area, a likely target in a conflict because of major US military facilities there, accounts for some 30% of the Japanese population, and well over 20% of Japan’s GDP.

It is common to think of the impact on the Chinese-North Korean border, but a conflict would likely disrupt trade and activity throughout the Yellow Sea, striking at several key northern Chinese ports, including Tianjin.

And these might be only the first of many areas that could get drawn into the conflict, given America’s long military supply lines back to the US mainland.

Even from this rudimentary assessment of risk, it may appear obvious that war is simply too costly an option. But this needs be measured against the cost of inaction.

In a best-case scenario, where one assumes Pyongyang will never use its nuclear arsenal in a proactive strike against the United States (fearing US retaliation), the North Korean acquisition of long-range nuclear weapons may significantly alter the regional and even global security landscape.

Fears of a “domino effect” leading to the Japanese, South Korean and even Taiwanese acquisition of nuclear weapons may be overblown, and even concerns of North Korea selling nuclear technology to Iran may be overstated (such a transfer would likely invite US military action and undermine any other political or economic gains Pyongyang may hope to achieve from its nuclear deterrent).

But the possession of a nuclear deterrent by North Korea alters the perception of the US willingness to assist South Korea in regional issues, straining the viability of the US-South Korean alliance. It could also further erode global perceptions of US “reliability,” a cornerstone of the US strategic posture and security around the world.

A robust containment strategy to manage a nuclear North Korea would involve a significant increase in US and allied assets in the region, particularly those focused on anti-missile defense systems, shifting the strategic balance with China and Russia and potentially adding some reality to the nascent Sino-Russian strategic cooperation. The result could well be a move back to a polarized world, one with competing military, economic and political systems.

These are perhaps extreme scenarios. Maybe North Korea simply collapses under its own weight, leading to a humanitarian and social crisis that ends up creating a common shared interest for the United States and China. Perhaps Pyongyang and Washington can strike a surprise bargain, an entente aimed at constraining China, a miniature version of the late US president Richard Nixon’s China policy.

It may be that China breaks its self-imposed constraint on direct political interference, or Russia facilitates a shift in the leadership in North Korea.

But the current trajectory in both Pyongyang and Washington is one based less on these outside odds than on the race to see who blinks first.

Can Pyongyang truly gain the capability to deter US military, economic and political action through its nuclear program, thus breaking free from its international isolation and re-engage the international community? (A similar smaller “breakthrough” occurred in 2000, just a few years after North Korea’s first attempted satellite launch.) Will the United States decide that the only way to end a decades-old headache and potential flashpoint is through removing the North Korean leadership and military capacity once and for all?

These are the questions that will shape 2018 and beyond. There is little space for a compromise answer. Neither path appears satisfactory. And at the core, the lack of effective and regular pathways for dialogue and unbiased study and exchange leaves each side vulnerable to misunderstanding, miscalculation and biased assessments that risk coloring the ultimate decision.

Dialogue will not solve the North Korea crisis, but a lack of dialogue will almost certainly lead to an unsatisfactory outcome for all.

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Rodger Baker

Rodger Baker is vice-president of strategic analysis at Stratfor.com, a geopolitical intelligence and advisory firm headquartered in Austin, Texas. Baker leads Stratfor's analysis of East Asia and the Pacific and guides the company's global forecasting process. Since 1997, he has played a pivotal role in developing and refining Stratfor's analysis and geopolitical framework.

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