from Asia Unbound

Domain of Gains, Domain of Losses: Why Kim Jong-un’s Expectations Matter for the U.S.-North Korea Summit

North Korean leader Kim Jong Un and his wife Ri Sol Ju watch South Korean K-pop singers perform in a concert. KCNA/via Reuters

April 3, 2018

North Korean leader Kim Jong Un and his wife Ri Sol Ju watch South Korean K-pop singers perform in a concert. KCNA/via Reuters
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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

Patrick McEachern is a Council on Foreign Relations international affairs fellow at the Woodrow Wilson International Center for Scholars. Views expressed do not necessarily reflect those of the U.S. government or Department of State.

When North Korean leader Kim Jong-un reportedly offered a summit meeting with President Donald Trump, American and South Korean officials understandably and predictably credited the “maximum pressure” strategy. They reasoned that sanctions and pressure tactics brought Kim to the table, secured Pyongyang’s unilateral concession on refraining from nuclear and ballistic missile flight tests, and would allow the two leaders to discuss denuclearization. Notwithstanding skepticism about North Korea’s intentions, non-governmental analyses largely agree that Kim is coming to the table because sanctions are “beginning to bite.”

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However, observed data dispute the notion that North Korea’s economy has suffered recent setbacks. North Korea’s economy has grown following the regime’s domestic marketization and monetization efforts, and food prices and the exchange rate have remained stable. There have been sporadic reports of fuel shortages, but satellite data does not show any lines at the gas pumps. North Korea’s economy chronically underperforms, but it is not facing a current crisis.

To be sure, both UN and U.S. sanctions have become more ambitious, and China has signaled a greater willingness to clamp down by signing onto the UN sanctions. China accounts for roughly ninety percent of North Korean licit trade with illicit and weapons-related trade providing additional sources of foreign currency. Though the Chinese and transnational criminal networks fail to report reliable trade data with North Korea, a confluence of anecdotal information supports the idea that North Korea’s foreign earnings have dropped significantly.

How can the North Korean economy be doing just fine and sanctions have a biting effect simultaneously? One theory holds that North Korea is financing its trade deficit with reserves, which delays the economic hurt until the savings run out. Kim could worry about the unknown economic consequences of continuing down this path. Beyond economics, the Trump administration has raised the rhetorical pressure with more explicit public discussion of possible military options to come, providing Kim another potential worry about the future.

While there are not observed consequences inside North Korea from the pressure campaign today, Kim may expect trouble ahead. The observed-expected distinction is important to understanding Kim’s motivations and psychology ahead of his summit with Trump. Is Kim desperate to make a deal with the Americans to relieve pressure, or is he looking proactively to advance gains? Daniel Kahneman and Amos Tversky, in research that would lead to a Nobel Prize, showed how people psychologically underweight in decision-making probable future consequences over the certainty of observed conditions today. When in the “domain of losses” of facing current problems, leaders are more likely to take desperate risks to reverse their fortunes. When in the forward-looking “domain of gains,” they are more likely to avoid risks to safeguard what they already have.

In approaching the U.S.-North Korea summit, Kim Jong-un appears to be in the “domain of gains.” He may be trying to preemptively head off the expected—but probabilistic—consequences of the pressure campaign and test the waters of advancing his regime’s long-sought goals with the Americans. He is not defensively reacting to the certainty of a present problem he can see within his country today. That means he is more likely to be risk-averse in the negotiations and less eager to make just any deal with Trump to get some immediate pressure relief. Kim’s risk-accepting behavior is usually considered dangerous as it implies his greater willingness to use force, but Kim will have to take some risk in curtailing his nuclear program to make progress in diplomatic negotiations.

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The North Koreans are not close to surrender, but the United States should not negotiate with itself and water down its opening bid before sitting down with the North Koreans either. North Korea’s past negotiating behavior suggests they will initially outline their full wish list, and there is no reason the American should not go on record with the same. Opening bids are different from anticipated outcomes, and a realistic assessment of the other side’s material and psychological motivations can help set expectations to reduce the likelihood that the leaders speak past each other at the summit. It is tempting to look for a win-lose outcome where we get everything we want from the North Koreans and give nothing in return. However, Kim is not desperate, so we should not expect him to give away the farm for free. Looking for a long-term and sustainable win-win outcome that entails difficult and distasteful trade-offs on both sides should be the summit’s goal.

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