The situation with North Korea has been brewing for years, across several presidencies, going clear back to Bill Clinton. Kicking the can down the road has long been more politically expedient than confronting the belligerent communist nation.
Over the past year, North Korea began to seem more dangerous, with the combination of missile tests and threatening language toward South Korea and the U.S. And this week, when Trump threatened North Korean leader Kim Jong Un with “fire and fury like the world has never seen before,” the situation seemed headed for a moment of truth.
Regrettably, it’s a situation that involves weapons that can kill many millions of people at the push of a button, and a couple of decidedly volatile and unpredictable world leaders. A war—or even an accelerating movement toward war—could, needless to say, have a range of effects on tech companies, all of them serious.
Companies like Apple, Microsoft, and other hardware makers have most of their products manufactured in Asia. Thousands of components suppliers are located in Asia, many on the Korean peninsula. Apple lists 16 South Korean companies in its 2017 supplier list. One of the biggest, Samsung, is the largest supplier in the world of semiconductors, displays, and memory for consumer tech devices. (It’s also, of course, the biggest phone maker in the world.) LG produces display components and phones, among many other things.
All told, South Korea has more than 100 major companies providing products and services all over the world. War in East Asia would be a many-dimensioned tragedy, and one of those dimensions is that the global smartphone industry would pretty much grind to a halt.
In the Valley, few people are seriously worried about war, nuclear or not. Yale professor of management and political science Paul Bracken told me that for most tech leaders, the idea of war against North Korea is still nothing to immediately act upon.
“It seems to me that in the American consciousness, it’s still unthinkable that there could be a war that could destroy significant parts of the Korean industrial base,” Bracken said. “I don’t think it’s been absorbed yet that that could happen.”
Bracken is a member of the Council on Foreign Relations and advises private equity funds, accounting, and insurance companies, as well as several arms of the U.S. government. The “unthinkable” mind-set might explain why the U.S. stock market barely reacted to Trump’s provocative “fire and fury” threat (although the CBOE Volatility Index jumped 11% and markets in South Korea and Japan fell.)
The procurement people at large tech companies who manage supplier relationships are very likely now beginning to think about alternative sources for the components they buy from East Asian companies, Bracken told me. But, he said, it’s unlikely this thinking has reached the point where an officer is compelled to go before the board of directors and request funds for an official study into the situation.
But events over the next several months could make the unthinkable seem thinkable. The U.S. and North Korea have taken a few steps on an escalation path that could lead to war. (This article in the Economist describes just how easily this process could progress.) Until earlier this week, the situation looked like a small, noisy, belligerent country challenging a superpower, while the superpower relied mainly on behind-the-scenes diplomacy and sanctions to control the situation. Trump’s “fire and fury” comment, arguably, transformed the relationship into one based on threatening each other with the most powerful weapons in the world.
A Years-Long Recovery
If this tit-for-tat dynamic was to continue and advance beyond words to aggressive actions, symbolic or otherwise, the situation could take on the appearance at least of an escalation toward war. Such situations are subject to all manner of miscommunications and misjudgments on both sides that can push the situation to the brink in unimaginable ways.
If war in East Asia began to seem inevitable, technology businesses in that part of the world would be disrupted. Workers at manufacturing facilities and suppliers would stay home from work. Orders might run way behind or go unfilled.
The crisis could also generate a humanitarian crisis that could put severe stress on South Korea and China in social, political, and economic ways. If a military attack by the U.S. and South Korea on North Korea seemed imminent, millions of North Koreans would likely rush over the border to South Korea and China.
Creative Strategies analyst Tim Bajarin recently spoke with a South Korean tech leader who said that eventuality is his worst fear. The executive added that it could take years for South Korean officials to restabilize the region. And it could take years longer for tech companies to get back to producing and delivering their products on time.
U.S. tech companies are increasingly dependent on China, both for component parts and manufacturing, and for the masses of consumers it hopes to win there. A military conflict on the Korean peninsula could also put China, a sometimes hesitant ally of Pyongyang, into a defensive position against the U.S., and would strain those business relationships. “China is getting to be a much tougher environment for U.S. technology companies on a number of fronts, from intellectual property to rules and regulations,” Bracken said.
With so much of the world’s manufacturing and components supply in the region, the global tech economy would suffer, which would pull down the rest of the U.S. economy.
The long-term effects could break in many different ways.
U.S. tech companies may end up bringing some of their far-flung affiliates back home. “. . . they may think it’s a danger and that they may have to shift some of their operations out of there to lower their vulnerability in theater in South Korea,” Bracken said. “The whole thing is really a big mess.”
One Valley executive told me the U.S. economy could actually benefit, because some suppliers and manufacturers might see East Asia and especially South Korea as too risky a place to do business and decide to move operations to the U.S.
“While I am utterly disgusted by this line of thinking, I would put it beyond fanatic nationalists such as Bannon or Trump to be attracted to the fact that a war in Asia will drastically reduce imports from Asia and bring back manufacturing to the U.S., the person said.
If that were to happen, the cost of tech products might increase (due to the cost of new infrastructure builds and more expensive labor), but so might job growth here at home.
Of course, war in the nuclear age is too high a price to pay for any positive economic outcomes. Bracken says the world needs to get used to a nuclear North Korea. Any realistic opportunity to neuter the nation using military force passed long ago, he believes. The risks are just too great. While it’s doubtful North Korea could actually deliver a nuclear payload to the continental U.S., it’s quite possible it could deliver one to Seoul or Tokyo.
What’s needed now is a calm, long-term, bilateral containment plan that at no time pushes Kim Jong Un into a corner where pushing the red button seems like the only option.