The USA and UN has added N. Korea to its list of countries it has sanctions imposed against as tensions over N. Korea’s nuclear program rise. China is supporting the global pressure on N. Korea and has also implemented the UN’s new package of sanctions against the country, but pressure is rising from the Trump administration for China to do more, but China has warned the US to be mindful that any intimidation towards them could be detrimental to future trade agreements between the US and China. China’s Commerce Ministry announced a ban on imports of iron ore, iron, lead and coal from N. Korea effective earlier this month, (except for clearing of goods already in port until 5 Sep). China accounts for almost 90% of N. Korean trade, with coal accounting for almost 50% of N. Korea’s exports, but last month China revealed that imports from N. Korea fell to $880M in the six months ending Jun., down 13% from the previous year. On the flip side China saw a spike of 29% in exports to N. Korea, equating to $1.67Bn worth of Chinese products in total in 1H 2017 which helped increase trade between the two countries by 10% from 2016. China has been a long-standing ally of N. Korea and many believe that stemming imports from N. Korea will not be enough to persuade them to abandon their nuclear program as they see it as essential to their own survival as hostility towards Pyongyang increases. Tensions escalated further this month as the Trump promised “fire, fury, and frankly power, the likes of which this world has never seen before” in response to threats from N. Korea’s leader, Kim Jong Un. Although a physical confrontation is unlikely, the potential economic impact a conflict would have on the global economy would lead to long term consequences as well as a loss of life and livelihoods. As an example of the effects war has on a country’s GDP, the 1950-53 Korean War saw its GDP fall by over 80% while the latest Syrian war (2011-16) saw GDP drop 60%. If anything were to happen, S. Korea’s economy, which accounts for 2% of global GDP, would be hit hardest and supply chains would be affected. S. Korea is a key automotive manufacturer and home to the world’s three biggest shipbuilders, as well as a huge producer of liquid crystal displays and semiconductors. Meanwhile in the US, the cost of waging a war on foreign soil would impact the US economy. A prolonged war in Korea would push up the US federal debt, which is already uncomfortably high at 75% of GDP. We have also already seen in recent weeks a wave of falling stock prices as worried investors move money out of equities and into the perceived safety of gold, Swiss currency and similar products. At one point, this change in investment strategy cut $1Trn from the value of global stocks. In addition investors will likely reduce their exposure to global growth assets such as Asian equities and Asian currencies, exacerbating economic and trade disruptions in the region.