The shelling of Yeonpyeong and killing of civilians marks a very dangerous escalation of North Korean belligerency. It is probably driven by the North’s succession process as much as anything else. The good news is for that reason that it might be self-limiting; the bad news is that if the developments are not driven primarily by foreign policy goals, there is probably little that we can do to resolve it.  That said, I think that it is important that some real penalty be imposed on North Korea in order to help them calibrate the costs of future provocations—if not, it is practically an invitation for potentially catastrophic miscalculation in which some future provocation sets off an explosive escalation.

From an economic standpoint, I don’t think that these developments will have major implications for the South Korean economy.  Some commentary in South Korea has probably overestimated the impact of these events on world markets—my impression is that markets are reacting more to financial market developments in Europe than to military events in Korea. 

The sinking of the Cheonan was a shot in the arm for KORUS. Whether these latest developments will have a similar effect in concentrating the minds of US and South Korean trade negotiators remains to be seen. I am not as optimistic insofar as the talks are once again in a technical negotiating mode which is relatively unresponsive to this kind of stimulus, and less of a political mode where broader considerations come into play. That said, Secretary Clinton is KORUS’ biggest supporter in Washington, and we expect to host her for a major public address sometime after new year to address KORUS and other Asia-Pacific trade issues.