With every action there is a reaction. Rising tensions between the Koreas have proven this to be true. The New York Times article, “Tensions with North Korea Unsettle South’s Economy” confirms a correlation between North Korea’s recent threats and South Korea’s economic stability.
Investors within financial markets are risk averse. North Korean’s initial threats to terminate a joint industrial complex in Kaesong, “the last major symbol of inter-Korean cooperation” and the denial of entry to South Korean workers across the border has caused disruptions for South Korea’s economy. Termination of the complex has bruised investors’ assurance. A member of the American Chamber of Commerce in Korea, Tom Coyner says, “The North Koreans are now using the propaganda in an extreme form to try to damage foreign direct investments into South Korea. It’s a very interesting, sophisticated economic attack on South Korea.”
Heightened tensions between the Koreas have initiated concern for General Motors Co. (GM). GM has five plants in South Korea. In an interview on CNBC today Chief Executive officer of GM, Dan Akerson, affirms that if tensions continue to rise GM will be evoked to move production elsewhere. Akerson, “If there were something to happen in Korea, it’s going to affect our entire industry, not just General Motors.”
North Koreas intensifying threats have caused South Korea’s won to fall 0.7 percent against the U.S. dollar, currently 1,131.69 per dollar, an all time low in the past 7 months. As tensions escalate with North Koreas, KOSPI, a major stock market index for South Korea which tracks the performance of large companies based in South Korea has fallen 1.7 percent. With the expectation of the continuation of tensions to rise along with concerns of investors, the Bank of Korea aims to improve corporate investment and consumer spending by lowering interest rates.
North Korea does not have to launch a nuclear missile on South Korea to cause destruction for they have already declared a successful “economic warfare”.
Summary by Rebecca Mozafaripour, UNC Charlotte, International PR Major