April 27 has the potential to become a date to enter the history textbooks: today the leaders of North and South Korea finally meet to negotiate peace between the two countries. The leaders of the two Koreas have not met since 2007; in particular, the world has been somewhat afraid of North Korea and its nuclear capabilities. So what exactly does the meeting between Kim Jong-un and Moon Jae-in entail?
The two leaders gathered in the demilitarized zone (DMZ) on the border between North and South Korea. They are set to discuss several important issues: the diplomatic relations between North and South Korea, a potential plan for denuclearization, and a peace agreement.
It might be helpful to take a quick dive into the history of Korea. During the first half of the 20th century Korea was ruled by Imperial Japan, but after Japan started to lose during World War II the Korean peninsula was liberated. Due to the fact that the north was more influenced by the Soviet Union and China, while the south had more Western influence, two separate Koreas were formed. They both wanted to lay claim on all of Korea, disputing the other side’s rights, which lead to the Korean war in the early 50s. Although the fighting ceased in 1953 and the DMZ was established between the two territories, North and South Korea never actually signed a treaty to end the war, so on paper it has been going on all this time.
The current President of South Korea, Moon Jae-in has been outspoken about seeking peace with North Korea. The two countries even marched together at the opening of the Winter Olympics earlier this year. This is also the first of two important meetings for Kim Jong-un, who is also set to talk to Donald Trump next month. South Korea is expected to serve as the key mediating body between North Korea and the United States. In other words, a lot is at stake during the current meeting.
While this summit has given rise to talks about peace between the two countries and opening North Korea to the world, this might not happen. There are a lot of things on which the two countries do not agree. North Korea has been stubbornly developing its nuclear program over the years and has performed multiple missile tests in the past year, with rockets flying dangerously close to South Korean territory. Moreover, North Korea faces multiple allegations of human rights violations. On the other hand, South Korea has a good democratic record, has been an active UN member and has one of the most developed economies in the world.
Despite their differences, as of this morning North and South Korea have officially agreed to sign a peace treaty before the year’s end, officially ending the Korean war. Kim Jong-un has not yet spoken publicly about ending North Korea’s nuclear program, but Moon insisted that both leaders are on the same page, seeking the denuclearization of the Korean Peninsula. We are still awaiting more details on this issue.
The deciding factor for this summit was the rhetoric between the United States and North Korea. Last summer the financial markets experienced a lot of shock when Trump and Kim Jong-un exchanged offensive words and threatened each other with possible missile strikes. It is believed that part of the reason why Kim Jong-un decided to meet up with Moon and subsequently Trump is to avoid a further escalation of the conflict. Naturally what South Korea and the United States want out of this summit is for North Korea to drop its nuclear program.
What is also key is that North Korea is supported by China, while South Korea has a friend in the face of the United States. China and the US have their own beef, as we all saw their mutual tariffs imposed over the last few weeks. In general, the stability of the entire region depends on how this summit goes. This will also have a major impact on the financial markets in terms of whether safety assets like gold and the Japanese yen will become popular again.
Now that the two leaders have agreed on peace, we must follow the issue closely. If North Korea really complies and becomes less of a threat in the region, this could have a large impact on global finances.
