US President Donald Trump has vowed to respond with “fire and fury” after North Korea threatened to attack the US territory of Guam. His comment sent Hong Kong shares tumbling nearly 1,000 points.
The threat of war on the Korean Peninsula obviously matters a lot to investors.
A war will be very costly as it will affect three of the world’s largest economies – the United States, China and Japan.
Shipping lanes will be disrupted and regional trade will slow. South Korea, the world’s largest exporter of memory chips and OLED, will suffer the most. The global electronic industry will face delayed shipments. Stock markets will tank.
So, is there going to be a war?
Some say it is unlikely because so far Trump has done nothing but talk tough. If the US is determined to go to war against North Korea, he should have already sent aircraft carriers to the Korean Peninsula.
Others say war is often fought to gain certain benefits. The war on Iraq, for example, was about oil. From that perspective, the chance of a US-North Korea war is low because there is no incentive for the US.
Both sides have made a point. However, many historical events were driven by the human factor. We should study the probability of conflict from character of the leaders of the two nations.
North Korea will not start a war for obvious reasons. What about Trump?
The US president has great powers when it comes to deciding whether to declare a war or not.
The War Powers Resolution, enacted in 1973, requires the US president to consult with Congress before sending US armed forces into combat unless there is already a declaration of war.
But history will tell us that as commander in chief of the armed forces, US presidents have sent troops to battle without congressional permission. President Harry Truman did so in the Korean War in 1950.
What would force Trump to declare war on North Korea?
The chaos in the Trump administration is astounding. The US has withdrawn from several international pacts, and several of Trump’s high-level officials and aides have quit or have been fired. Trump and members of his family are facing an investigation over the Russian role in his election campaign.
To divert public attention away from the political mess at home, Trump, who is fairly unpredictable, could decide to undertake extreme actions if he is under much pressure.
A war does not necessarily lead to a stock market meltdown, but when equities are already expensive, as they are now, the tension in the Korean Peninsula could become a good excuse to sell.
This article appeared in the Hong Kong Economic Journal on Aug. 16
Translation by Julie Zhu
[Chinese version 中文版]
– Contact us at [email protected]