Possible Effects of an Economic Decline in East-asia on The Rest of The World

A physical engagement between the two nations remains unlikely, but it is something that serious analysts and academics have started to talk about.

Clearly, the biggest and most important impact of any conflict between the US and North Korea, either nuclear or conventional, would be a catastrophic loss of life and huge human suffering. Any conflict on the Korean Peninsula would affect millions of people. Over 75 million people live on the peninsula, 25 million in North Korea and 51 million in the South. China and perhaps Japan could receive millions of refugees, and a nuclear strike in Korea, especially with multiple weapons, would cause massive property damage and loss of life in Japan.

The staff at the research house Capital Economics has assessed the potential economic impact that a conflict could have on the world’s economic prosperity. Gareth Leather and Krystal Tan of Capital Economics note that countries involved in major conflicts since World War II have seen significant drops in economic output.

“The experience of past military conflicts shows how big an impact wars can have on the economy. The war in Syria has led to a 60% fall in the country’s GDP,” or gross domestic product, the two wrote. The most devastating military conflict since World War Two, however, has been the Korean War (1950-53), which led to 1.2m South Korean deaths and saw the value of its GDP fall by over 80%.

The Korean Peninsula, the most likely center of a conflict involving North Korea, would bear the brunt of any economic shock, Capital Economics’ analysts suggest, with South Korea’s economy hit worst. That impact would inevitably spread to the wider global economy, which, given that South Korea accounts for 2% of global GDP, could cause significant disruption.

Supply chains globally would be affected, with Capital Economics stating that every country having significant trade relations with East-Asia, would see a decline in their GDP. The EU would be affected a lot by events of the conflict. This is because the most important economies in EU are also part of NATO and would help the US in events of the war. Countries such as Germany, France, UK, and the Netherlands. During a Korean conflict, NATO members will likely spend a lot more of their GDP on their military. This can lead to an increase of national deficit.

Experts from Capital Economics stated that a conflict will disrupt trade in East-Asia. The global economy will be enormously affected if the region in East-Asia will become destabilized. Business and consumer confidence will drop in East-Asia. Multinational corporations and countries will need to get their goods elsewhere if trade with China, Japan, and South-Korea becomes disrupted. The EU and the US would likely start trading more with countries such as India and Malaysia. As the disruptions would drag on export growth and hit the productive capacity in the region.