Economics Today: North Korea, China and South-East Asia | Richard Dasher

 

About Richard Dasher

Richard Dasher has been Director of the US-Asia Technology Management Center since 1994 and, concurrently, Executive Director of the Center for Integrated Systems since 1998. His research and teaching focus on innovation systems and the impact of new technologies on industry structure and dynamics. Dr. Dasher serves on selection and review committees of major government funding programs for science, technology, and innovation in Canada and Japan. He is an advisor to start-up companies, business accelerators, venture capital firms, and nonprofits in the U.S., China, Japan, and S. Korea. Dr. Dasher was the first non-Japanese person ever asked to join the governance of a Japanese national university, serving as an outside Board Director and member of the Management Council of Tohoku University from 2004 – 2010. Dr. Dasher received M.A. and Ph.D. degrees in Linguistics from Stanford University. From 1986 – 90, he was Director of the U.S. State Department’s Advanced Language and Area Training Centers in Japan and Korea that provide full-time curricula to U.S. and Commonwealth Country diplomats assigned to those countries.

 

Interview Transcript:

Alan
I’m here today with Richard Dasher of the US Asia Technology Management Center on Stanford campus. Richard, welcome to today’s show.

Richard
Thank you. I appreciate being on.

Alan
So Rich. So you recently finished a trip over to South Korea. And, you know, we’re seeing in the news, the military situation in North Korea. How is it affecting the economic relations in in that country, South Korea, as well as the other Far East countries.

Richard
I think you have to make a real distinction between the security relationship and the economic relationship. On the security side, the South Koreans have had big, you know, war games with the US recently that was one of the things that the North Koreans were reacting against. And as soon as North Korea does a missile test, they will test some bombers or test some missiles over on the South Korea side, Japan is really becoming much more serious about rearming itself even talking about changing their constitution. And I think that the North Korean situation is a big reason that they feel like they need to do this. But on the economic side, you’re dealing with a very small country, North Korea, the total GDP of North Korea is somewhere around $40 billion. And by comparison, the annual sales of one company Samsung, in South Korea last year was $170 billion US. So North Korea is very small, is very isolated, it’s very top down. There wasn’t a whole lot of trade back and forth between North Korea and just about anybody else, except for China. China has accounted for over three fourths of North Korea’s trade. And certainly the economic sanctions are slowing that down. To the extent that China is really honoring those sanctions and that they’re really being enforced. Until the latest set after the North Korean missile went off last week, there was really quite a few loopholes that the Chinese were using to continue a lot of their business back and forth with the North. There’s one other source of income for North Korea that people don’t think about much. And that’s workers from North Korea who have been sent to places like China or Russia, or even Kuwait. And they’re doing work and sending remittances back home to North Korea, that has finally been addressed in this latest set of sanctions. So I think that you’re seeing a very minor dip when I was in Seoul. It was business as usual, you really couldn’t tell anybody being particularly worried about an invasion from the north or an artillery barrage from the North. That hasn’t happened yet. The worry hasn’t really hit people yet.

Alan
You know, it’s interesting when you mentioned that the size and the scale of North Korea putting it in perspective, 40 billion, which is even third, and what Samsung sells alone are doing. And so on the world stage for the economic purposes, you know, putting in perspective, North Korea does not have substantial impact.

Richard
That’s correct.

Alan
Okay. So I’m going to move over to China, because clearly some of the supporting that, that the trade there and in China has remained relatively silent until the last few weeks. What do you feel is influencing China to behave in a different way if it all is true?

Richard
Well, I’m really glad you asked about China. Because I think that to understand the security situation between North Korea and its neighbors, South Korea, Japan, and also the US, you really have to look at North Korea China relations. And I’m guessing that if we think Kim Jong Un is sort of hard to deal with, he must really be a thorn in the side of the Chinese, because they are trying to really step out onto the world stage after the US got out of TPP. And after the US seems to be moving down a more isolationist road, the Chinese really want to pick up influence all across Asia, they have this One Belt, One Road policy that is kind of imitating the old Silk Road that Marco Polo, you know, across in the Middle Ages. And as part of this, they need a good security buffer in North Korea. So for them, they want to keep things like it is although there are some people who think they would love to get rid of capital on? We don’t know, that’s speculation, but it’s clear that they are the Chinese are bearing the brunt of the economic sanctions, negative impact outside North Korea, certainly affecting things like the North, we would think. But it’s Chinese companies and Chinese banks that are really having a more difficult time because of the sanctions. They’re cutting crime.

Alan
I’m visiting here today with Richard Dasher at the USAsia Technology Management Center at Stanford campus which and I need to take a quick break. But when we come back, I want to jump into China and their view on the cryptocurrency recently in the news come out, we’ll be right back after these messages.

Alan
Welcome back, it isn’t here today with Richard Dasher at the US Asia Technology Management Center at Stanford campus. And, Richard, the last segment we were touching on North Korea, and I think the conclusion is okay, there’s there’s two issues. One is a security issue and the other is an economic and city economics and non issue in terms of the impact to the US economy. But China is is bearing the brunt of this has made an interesting movement in the last two weeks of on the area of crypto currency. Can you comment?

Richard
Well, I think the China is quite happy to see the difficulties that are starting to emerge with the US Dollar as a world currency. They for several years ago started promoting a basket of world currencies for international transactions as opposed to purely dollar denominated currencies. That has not happened. I think that to them, Bitcoin looked like an interesting alternative to dollars. Now, the anonymity that’s usually possible with Bitcoin made me amazed that China became a place with very active Bitcoin exchanges, as much as they did. And the only kind of explanation, I think, is that the people who ran those exchanges knew how to keep the government happy there. I think that the reaction against Bitcoin, maybe control over markets period, the Chinese government tries to defuse bubbles and tries to avoid bubbles bursting in a way that they can’t control. And I’m guessing that so much was being put into Bitcoin, that they just decided Wait, we got to put on the brakes.

Alan
So in the in the world of Bitcoin, they just they made a declaration of it. We’re closing down the servers. And then Jamie Dimon, the CEO of JP Morgan, goes out of publicly denounces the whole cryptocurrency is not real. I want to I want to not move too deep into this because obviously, it’s it’s a very fluid situation, but but when we roll back into, you know, what is what is the world currency? You know, it’s still the US dollar per se.

Richard
More or less, I would say that, but think about the dollar. When was the last time that you saw a silver certificate note where they would pay you the equivalent in silver for your piece of paper? Yeah, we all agreed that this currency has value and that essentially makes it pretty close to Bitcoin. If people agree that it has a value and they the markets can determine the value, then that’s how it’s usable. I think that the yeah, there’s a certain disingenuous nature to that comment about Bitcoin being a fraud or or whatever, because at the end of the day, so much value is being transferred around the world. All of these units of currency are basically abstract.

Alan
You know, I often get the question of, you know, where the US dollar is going, is it real? Is it going laughs and, and then we look at the US political scene and, you know, you hear you see the barbell effect. And in this, you know, depending on what side of the barbell you’re on. It’s there’s there’s no longer really a middle ground. So what I want to do, Jamie, I’m running, excuse me, Richard, I’m running up against the break right now. But when we come back, I’d like to, I like to move into the drivers of why the US dollar is still on the international exchange and how the central banking system has an influence on the world currencies as a whole. We’ll be right back after these messages.

Alan
Welcome back and visiting here today with Richard Dasher of the US Asia Technology Center, Stanford campus. Richard, in the last segment of you know, we rolled into China the influence they have in cryptocurrencies you touched on North Korea, I want to move back into the the world, the world banking system, because I think this is kind of an interesting play about, you know, where the US Dollars heading, a lot of people are losing confidence, and let’s go to gold. Let’s move to cryptocurrencies. And, you know, in tying that back to China, China is not a member of the g7 nations. We can go to the g8 say we put Russia in there. But But China is part of the come to the table in the G 20. Summit’s. So as as we move through, currently, the trade economics and across the border, we’re still seeing that the US has a tremendous amount of influence there. But ultimately, and this is, this is tossed in the air with the question of, you know, where the US dollar is going, you see the likelihood of in the in the short term of anybody moving away from the US dollars is the basis for trading.

Richard
Unless there’s some sort of a real crisis or calamity. I doubt it. One reason is because China is the US is largest trading partner. And that means that that business is probably going to continue to be in dollars for quite some time. So even if China wants to increase its relative influence in world markets, by encouraging some basket of currencies or moving away from the dollar, a lot of the business that’s actually doing is still going to be dollar denominated, that I think you also have these worldwide supply chains. You know, global trade is not bilateral trade. It’s something where the raw materials come from Indonesia, and the parts are made in Malaysia, and the final assembly is done in Shenzhen, China, and it winds up being sold in Canada first, before it comes down to the US. You have these worldwide global supply chains that you can hedge an awful lot of risk if you keep the same currency involved. And also, it needs simplicity, it needs to be completely accessible, it needs to be completely liquid. Right now. There’s really no substitute for the dollar. However, I do know the people who are really telling me to buy gold. I know there are a lot of people who are worried that there will be a calamity that there will be some kind of crisis. If it happens, it may be us undoing ourselves.

Alan
Yeah, it’s interesting. It’s for the for the listeners. I once had in the early days of the Iron Curtain coming down a group of Russians that had come over and they were actually trading for the country. And, and they were explaining that, you know, because the ruble was not recognized in the world currency market they they had to go to the Chicago Board of exchange and trade. Russian oil contracts for coats in Korea, and thereby they put the US dollar smack in the middle is the exchange agent We saw a January is a very interesting thing happened. The biggest buyers of the US Treasury bills was China. And Japan, of course, their economies are very dependent on the US. But they began to, to sell off positions. And ironically, Russia who is not a big trade partner, the US ended up being a buyer. Now, I don’t know what to make of that. But but when we roll forward nine months into the, to where we are now, you know, can you make sense of white Japan who’s so dependent on the US as a trade partner? Would we get to liquidate positions in the US Treasury bills?

Richard
That’s a very interesting kind of question, except that Japan has a very high degree of its own government debt. And so maybe they were buying back their positions in order to pay off some of the domestic debt that their own government has, in terms of how Japan is trying to revitalize its economy, keeping the yen relatively low has been very important to their industry becoming more competitive in international markets. So it doesn’t seem logical that they would want to weaken the dollar. My guess is that they figure that there will be a buyer for the currency. And what they need is they need cash to pay off their own debts.

Alan
So why don’t roll into Southeast Asia, Vietnam? What’s going on there?

Richard
Southeast Asia is in some ways the new engine of growth. China is going through a major structural change, where its GDP growth has dropped from 10% a year to somewhere around 6% a year, Southeast Asia has stayed constant, around six to 7% a year growth. And you’ve got a young labor force, you have a rising middle class, you have awareness of incredible opportunities, precisely because the infrastructure has been late to develop 1/3 of the people in Southeast Asia do not have bank accounts. So guess what, there’s an amazing amount of investment in FinTech that’s giving people mobile access to funds, and the ability to transfer funds in new ways that kind of leapfrog the system we’ve had.

Alan
Essentially saying, you know, I had on the show, one of the first customers or clients in a blockchain. And for those years, Can we roll through what is fintech?

Richard
So Fintech is the use of new technologies, whatever they are, for the purpose of financial business, you know, financial industries. I would say that the main kinds of areas in FinTech one has to do with access to money. One has to do with analysis of people’s behavior so as to minimize risk and maximize, you know, profit. And I think that you have things like blockchain that separate from all the Bitcoin really allow for new types of security, that may work in our current, heavily networked world where everything’s in the cloud. Blockchain works pretty nicely because it distributes the access codes and distributes security. And it also maximizes the traceability of a transaction so that you can tell whether something is fraudulent or not much more easily. I think that it’s one technology that’s easy to get over excited about. But it’s certainly one of these elements that’s really moving things in a different way.

Alan
Stock markets crazy. It nothing seems to be taking that in a downward direction. You got hurricane Irma and infrastructure of Houston and Florida wiped out, you got the US Congress passing a $386 billion you know, budget, you know, to fund government, but nothing seems to be affecting directions on the market. I want to switch this over in terms of the context where, you know, when we look at Asia and the trade, it still tends to be a lot of manufacturing is done abroad and brought into the US is trade imbalances. What, what’s in it for the US to continue to do To be more of an importer, at least gets the next word.

Richard
Well, if I understood the market, I probably wouldn’t be here. But I think that certainly the market is expecting a continued increase in value increase in the creation of value. What I’m worried about is that we’re so much more global, intrinsically speaking, than we’re even aware that really, foreign companies account for hundreds of 1000s of jobs in California. And without the ability to move freely in international markets, probably, you know, 80% of California, D GDP would be at risk. We really depend on access to other markets, as well as the US market. And so we cannot build an economic wall. That doesn’t work. I think that what worries me is that people don’t see this, they see the outflow of jobs to places that are cheaper, not realizing that Silicon Valley is probably as much a criminal and culprit in terms of causing job loss through technology, innovation. And, you know, you have to get used to things we need. We do need better government policies to take care of the people. But it’s really important for us to remember that when you open up an iPhone watch, or an Apple Watch, you’re looking at 12 or 13 Different countries that were involved in making that watch. And that allows us to have things that make our lives better. And we really depend on that. It’s not a luxury. It’s an essential part of our economic structure.

Alan
Now would you say that, because the US imports so much goods made throughout the world, that in exchange, it positions itself to have a US dollar dominated world currency?

Richard
I think that we’ve benefited from that to a degree that we don’t even realize partly because we don’t know any other way. Your example about the Russian group that came through that had to go through the Chicago Commodity Exchange, in order to do a trade with Korea. South Korea is a very good example. We have been the blood that flows through the world economy with the US dollar. And we need to keep that flow and we need to make it positive and trustable. There’s there’s a lot of work that always has to be done. But we’re benefiting by being the world currency.

Alan
And it isn’t here today with Richard gasher, the USAsia technology management, Senator Richard, we’re out of time. But I really appreciate you being on today’s show. I want to thank you very much. And for the listeners out there to get a replay of today’s show. We’ll have it posted up on groco geo rocio.com. Richard, thanks for being with us. Thanks for joining us here on American Dreams and join us right here next week on the station. Have a good week.

 

 

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