China and South Korea Come to Terms on THAAD Dispute

Matt McGregor

November, 2017

On October 31, the foreign ministries of China and South Korea issued a joint statement calling for normalization of ties after a more than year-long dispute over Seoul’s decision to deploy a US missile shield, the Terminal High Altitude Air Defense (THAAD) system in response to North Korean missile tests.  This resolution is good news for the Korean economy, which has been suffering from boycotts and unofficial sanctions by China. The agreement is also indicative of a shifting balance of power in East Asia.

China originally objected to the THAAD deployment that began in late April on the basis that although the system is aimed at countering North Korea, it threatens Chinese security with its surveillance capabilities.  When asked about possible consequences, one Chinese official remarked that THAAD systems in South Korea would destroy South Korea-China relations in “an instant”.

As the first two systems were deployed, China began an informal set of economic sanctions on Korean industries that rely on the Chinese market. Actions included encouraging boycotts of Korean businesses in China and instructing travel agencies in China to halt sales of Korean vacations.

As China is South Korea’s largest trading partner, this put Korean companies like Hyundai, whose second quarter sales in China were down 64% this year, under significant pressure.  Tourism and retail, both heavily dependent on the Chinese market, were also among the hardest hit.  While Korea bore the brunt of these sanctions, they haven’t been without cost to China – Hyundai makes components in Chinese factories and was forced to halt production in response to the downturn in business.

The recent agreement involved compromise and an exchange of diplomatic guarantees.  China will end sanctions and tolerate existing THAAD systems in exchange for three conditions on South Korea’s future behavior: no further anti-ballistic missile system deployments in the country, no membership in a US-led regional missile defense network, and no membership in a military alliance involving the US and Japan.

The agreement is likely a result of Korean President Moon Jae-in’s political orientation. He takes an antagonistic view of Japan, seeing the country as as an unrepentant colonial power and campaigned on a new, independent diplomacy widely interpreted to mean greater ties to China.

When American President Donald Trump attended a banquet hosted by Moon on November 7, a Korean “comfort woman” forced into sex slavery by the Japanese during World War 2 was in attendance.  The meal served included shrimp fished from around Dokdo – a pair of islets disputed by South Korea and Japan.  The symbolism and diplomatic insult were not lost on the Japanese, who lodged complaints the next day.  With Moon’s issues with China resolved, it is clear where his priorities lie.

The South Korea-China dispute illustrates China’s willingness to respond to perceived threats and to secure diplomatic guarantees with economic muscle.  While at first glance the compromise appears to be a Chinese concession, keeping Korea out of an American-led East Asian military alliance is probably worth the relatively marginal cost of tolerating existing THAAD systems on South Korean soil.  As defense experts point out, the AN/TPY-2 radar systems that are deployed in THAAD packages could improve early tracking of missiles originating in China, but as two of the radars are currently deployed in Japan, any improvement would be marginal.  For China, removing such capabilities is perhaps not worth the cost of sacrificing a major trading relationship, especially with a country headed by a leader less favourable towards Japan and willing to say no to the US.

On another level, the origins of the dispute may have their root in a growing rivalry between South Korea and China themselves, whose economies exist in direct competition.  As Chinese and Korean workers compete for the same jobs, it is easy for the Chinese government to stoke nationalist sentiments to pressure foreign governments.  This is not a new strategy for the Chinese either – in 2012 amid the ongoing South China Sea dispute, China closed its markets to Philippine fruit exports and similarly directed travel agencies to stop selling Philippine vacations.

The ever-shifting balance of power in East Asia between the US and China is on full display as North Korean provocations prompted protective action from the US and South Korea. In this case, assurances from South Korea point to a situation that is becoming increasingly common in Asia where China’s new economic ties are forcing neighboring countries to reassess the value of historical alliances and the wisdom in challenging the will of what is soon to become the world’s leading economy.