Early this morning, Donald Trump and Kim Jong Un met for the first time. This was the first meeting between the leaders of the two countries in history. The meeting capped many months of increased preparations and tensions between the two countries. At the end of their meeting, the two leaders signed a document, which Trump called a ‘very important document’.
The details of the document are not yet known but there are hopes that it will include a path to denuclearization and easing of sanctions on North Korea. However, going by the statements from the American president, there is a likelihood that progress was made. In the first encounter, the president said that the two leaders had developed a very good bond. He also promised that the people from the two countries would be very ‘impressed’ by the deal.
After the meeting, the dollar strengthened while global futures went up. This is as traders placed their bets that reduced Korean tensions would be a good thing for the markets. The chart below shows the dollar index movements in the past five days.
To starters, the North Korean issue has been a thorn in the flesh for all American presidents for more than 7 decades. The tensions rose during the Korean war, which started in 1950. During this war, Korea was split into two regions with the Soviet Union taking the Northern region. The Southern region was taken by the United States which introduced capitalism.
Officially, the war has never ended because the two countries did not sign a declaration of the end of war. As a result, the demilitarized zone in the border of the two countries has always been a tense place with the military of the two countries ready to go to physical war at any time.
As a communist country, North Korea has had three leaders who come from one family. To protect their dynasty, the leaders started researching and developing nuclear weapons which went against the UN anti-proliferation treaty.
To prevent the country from being a nuclear power, different American leaders have used different strategies. Bill Clinton negotiated with the former leader, who agreed to denuclearize. This strategy was changed by George Bush, his predecessor. Barack Obama used a strategy of strategic patience which used sanctions to false the regime to end the nuclear programs. Donald Trump on his part used a combination of tough talk and increased sanctions to bring the regime to the negotiating table. The tough talk included statements like fire and fury and the nickname of liddle rocket man. They also compared the size of the nuclear buttons they had.
This year, the tough talk changed when Kim Jong Un offered an olive branch to Donald Trump in March. He also met with the South Korean leader at the demilitarized zone and promised to improve ties.
Today’s meeting is a positive thing for the two countries. However, it should be taken with a grain of salt because the US and North Korea have been known to cheat. The US has signed similar documents in the past only to renege from its obligations. North Korea too has promised to end its nuclear programs only to cheat.