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What happens if the tension between North and South Korea gets worse?

Rob Schmitz Dec 20, 2010
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What happens if the tension between North and South Korea gets worse?

Rob Schmitz Dec 20, 2010
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TEXT OF INTERVIEW

STACY VANEK SMITH: South Korea conducted live-fire drills near the border with the North today. North Korea had said it would retaliate if that happened. It’s backed down this morning. But it did call the drills reckless provocation. So what happens if it gets worse? How would that impact the global economy?

Marketplace’s Asia Bureau Chief Rob Schmitz joins us to talk about this. Good morning Rob

ROB SCHMITZ: Hey, Stacey.

VANEK SMITH: Rob, we know South Korea is a growing international high-tech and car maker. Could these drills end up impacting Korean businesses and exporters?

SCHMITZ: The short answer is no. Today’s drills caused some ripples in Asian stock markets, but we didn’t see assembly lines shut down or anything like that. But it’s worth mentioning all the products South Korea exports to the U.S. and the rest of the world: cars, and lots of electonic gadgets. The country’s a big steel exporter, too. So the question is: would a military confrontation impact the global supply chain of all these products? I posed that to Korea expert Fang Xiuyu at Fudan University in Shanghai, and here’s what she told me.

FANG XIUYU: If it were a conflict that lasted a matter of days, then there wouldn’t be much of a global impact. Local markets would fill that gap, and prices would remain stable. If it were a full-scale war that lasted years, then yes, there’d be an impact, but that’s very unlikely.

VANEK SMITH: Why does she say unlikely?

SCHMITZ: She said it was unlikely because South Korea’s economy is way too important to the U.S., China, Russia, and Japan for any of those big powers to just sit back and watch something like that unfold. South Korea is China’s third largest trading partner, and we’ve just signed an historic free trade agreement with them. This type of scenario isn’t likely to happen, despite all media hype.

VANEK SMITH: Asia Bureau Chief Rob Schmitz. Thanks, Rob.

SCHMITZ: Thanks, Stacey.

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