Building a Flywheel

Executive Summary

As the United States seeks to maintain a level of stability in its increasingly competitive relationship with China, North Korea has the potential to complicate their intensifying rivalry. Dealing with North Korea is a complex endeavor that requires deft handling by both nations because the stakes are high and instability can spread rapidly.

For decades, China has been seeking to bolster the stability of the Kim family regime and increase China’s economic engagement with North Korea, to the point where North Korea Inc.—the Kim regime’s network of elite state trading companies—has embedded itself in major commercial hubs throughout China. By prioritizing the stability of the North Korean regime over denuclearization in its policy actions, China created a loophole in which the North Korean regime could enjoy economic benefits without having to do denuclearization work. Beijing thus impeded the development of a connection to a larger process in which major denuclearization activity would be paired with major economic and diplomatic concessions.

In contrast to China’s sustained engagement with North Korea, U.S. policy toward North Korea over the last decade has focused substantially on sanctions implementation. There was a brief period of summit diplomacy during the Trump administration, but those efforts failed to bring about progress toward denuclearization.

The North Korean nuclear issue has mutated into a much more complex challenge that no longer fits into past policy molds that rely heavily on sanctions implementation. President Joe Biden’s administration will need to recognize that North Korea under Kim Jong Un has become highly resilient to U.S. policy tools such as sanctions, largely due to far-reaching advancements in the relationship between the Chinese Communist Party (CCP) and the Workers’ Party of Korea (WPK) as well as the migration and embedding of North Korea Inc. deep inside the Chinese national economy.

During the past few years, five key developments have changed the environment and called into question the efficacy of relying on sanctions alone to change North Korean behavior:

• North Korea has advanced its nuclear and missile capabilities. North Korea has advanced its nuclear-armed intercontinental ballistic missile capabilities and now poses a direct threat to the continental United States. In recent years, North Korea has also dramatically advanced other aspects of its nuclear and missile capabilities at shorter ranges. Sanctions are neither bringing North Korea back to the negotiating table nor impeding its ability to further build its nuclear arsenal.
• North Korea is surviving a self-inflicted economic crisis. North Korea effectively survived a severe protracted lockdown of its economy, raising serious doubts about depending on U.S. and U.N. Security Council sanctions as a tool of influence. Since January 2020, North Korea has implemented a stringent COVID-19 prevention policy that, in practice, has the impact of a full-scale economic quarantine. (Although the North Koreans reportedly made an exception for two train shipments in January 2022, the overall border closure remains in place.) North Korea’s trade with China plunged by 75 percent in 2020 versus the previous year, yet Kim made no effort to seek sanctions relief nor demonstrated any willingness to make concessions on his country’s nuclear or missile programs in order to access international assistance.
• The season of summitry has failed, and North Korea is increasingly dependent on China. The failure of the short-lived U.S.–North Korea summitry during 2018–19 resulted in North Korea shutting down communications with both Washington and Seoul. China emerged as North Korea’s sole outlet for support.
• U.S.-China relations have worsened. U.S.-China relations have deteriorated sharply over the last two years, making the possibility for cooperation on North Korea between the two countries more remote.
• China has rapidly pursued a digital currency. China continues to speedily build its own digital currency, which has major consequences for the United States’ sanctions playbook. Although China’s digital currency is at an early stage, its efforts to circumvent the U.S. dollar denominated system and build an alternative to the U.S. financial system will likely accelerate.¹

In light of these developments, the traditional U.S. approach of applying more sanctions to bring North Korea to the bargaining table and pressuring China to rein in North Korea has largely run its course. The COVID-19 threat brought about the most intense actualization of a maximum pressure campaign that the United States could ever hope for, yet North Korea carries on.

The Biden administration has an opportunity to develop a more calibrated, practical approach that explores diplomacy with North Korea. This report draws on the idea of a flywheel—a heavy wheel that requires considerable effort to start rotating—and recommends creating a “flywheel effect,” or a structured series of decision points and wins to build momentum toward risk reduction and denuclearization, where “small wins for small wins” grow into “larger wins for larger wins.”

Implementing policies that create this effect can help lead North Korea toward a denuclearization path and break the country’s dependence on China.² Figure 1 outlines how policy actions could bring the United States and North Korea closer to a common vision of stability and prosperity on the Korean Peninsula, while also creating the space for other actors, such as South Korea and Japan, to contribute momentum to transforming the security, political, and economic landscape in the region.

This strategy has two key risks. First, North Korea could benefit from the easing of sanctions and halt additional denuclearization activities. Second, China could expand its engagement policy with North Korea, thereby decreasing the appeal of lifting sanctions under the "flywheel effect." The United States, however, can mitigate these risks by reinforcing the message to North Korea that only both sides’ sustained actions will enable them to reach the larger wins.

Figure 1: U.S. Actions to Create “The Flywheel Effect” with North Korea