This article was written and researched as part of the first cohort of 38 North’s Emerging Scholars Fellowship Program, under the mentorship of senior experts on North Korean affairs. The program and series were made possible through generous support by the Henry Luce Foundation. For more papers in this series, click here.
(Source: “Balance scale” by Sepehr Ehsani, CC BY-NC-ND 2.0 via Flickr)
February 27, 2025, marked the sixth anniversary of what has gone down in history as the “failed” Hanoi Summit, or the second meeting between then US President Donald Trump and DPRK (Democratic People’s Republic of Korea or North Korea) leader Kim Jong Un. The geopolitical situation has undergone tectonic shifts over those six years, deeply affecting both countries, from the COVID-19 pandemic and soaring inflation to the war in Ukraine and the resurgence of geopolitical and geoeconomic blocs.
In this shifting landscape, economic policy represents a central element of a country’s political agenda, and the DPRK is no exception. At the heart of the Kim regime lies a delicate short- to long-term balancing of market-oriented measures, which originally started in Kim Jong Il’s time. However, the full extent and impact of the reform efforts undertaken by Kim Jong Un remain unclear, given the external dynamics.
Retracing the evolution of Kim Jong Un’s approaches to economic development and the US-DPRK relationship provides some insights into the motives behind Pyongyang’s market-oriented measures and the current semi-isolation. As President Trump has expressed his willingness to resume dialogue with Pyongyang, the United States should consider enhanced economic incentives rather than adhering solely to a security-based bargaining framework focused primarily on denuclearization. Offering measures that align with Kim Jong Un’s economic priorities is likely to be a more effective way of encouraging the North Korean leader to engage in high-level discussions with Washington. Easing international sanctions and exploring co-development initiatives could contribute to the country’s economic revitalization and, ultimately, lead to improved socio-economic conditions for its population.
Economic Development Under Kim Jong Un
The three generations of the Kim leaders each have had different priorities during their terms. While Kim Il Sung viewed conventional weapons as the main means of achieving military superiority, his successor, Kim Jong Il, built nuclear weapons to ensure deterrence against the United States. At the same time, he pursued reform of domestic economic mechanisms, including the recognition of market-based price determination—which had already occurred in some areas due to the growth of markets during the famine in the 1990s—and the suspension of subsidies for those consumer goods that were not financially sustainable. These may be summed up as Kim Jong Il’s “July 1 measures.” This plan was followed by a series of policies allowing overseas trade and limited foreign investment. Nevertheless, the nation’s economy by the late 2000s remained stagnant. The Seoul-based Bank of Korea (BOK) estimated that the country’s gross domestic product (GDP) shrank drastically between 2006 and 2011.
From the beginning of his leadership, it was clear Kim Jong Un’s political ideology marked a significant shift from his predecessors’. Between 2012 and 2018, he enacted an economic policy agenda often described by many scholars as a “reform without openness,” echoing that of China in the early 1980s. As one expert pointed out, “reviving the economy was an obvious priority for him,” as he vowed to make economic issues a Party priority as early as April 2012.
At the March 2013 Party plenum, Kim Jong Un revived his grandfather’s 1962 byungjin line, or the simultaneous development of the economy and national defense. Unlike Kim Il Sung, who allocated far more national resources to the latter—despite the byungjin policy’s mandate—Kim Jong Un “upgraded” the economic component of the policy by directing more resources to the civilian economy. At the same Party meeting, Kim reinstated Pak Pong Ju, a technocrat who led Kim Jong Il’s market-oriented initiatives in the 2000s as Cabinet premier, to his former position. Additionally, under Kim Jong Un, North Korea launched the socialist enterprise responsibility management system (SERMS), a key part of the country’s reform package. SERMS is intended to lessen the Party’s oversight and grant state-owned enterprises greater autonomy and flexibility in planning, managing resources, and profits; it also enables them to establish economic relations and conduct transactions with pseudo-private businesses. In his famous “30 May Speech” in 2014, Kim Jong Un unveiled SERMS as the “core economic policy” of his leadership.
While Kim Jong Il demonstrated only partial acceptance of market mechanisms, Kim Jong Un has shown a tacit yet more daring acceptance of market mechanisms. This change in priorities was confirmed in April 2018, when Kim Jong Un proclaimed that the Party would “concentrate all efforts on the socialist economic construction,” formally prioritizing economic development over nuclear. In April 2019, North Korea codified SERMS into Article 33 of the constitution. These forward-leaning economic initiatives yielded measurable gains. According to the BOK, in 2016, North Korea achieved its fastest economic growth in 17 years, with its GDP rising 3.9 percent. The country’s trade volume rose by more than $2.7 billion in six years. Moreover, a study conducted by Seoul National University, based on over 1,137 interviews of North Koreans who fled the country between 2012 and 2020, experienced improved living standards and consumer conditions during this period.
Despite generally improved socioeconomic conditions in North Korea, a range of factors has shaped the country’s economic performance and Kim Jong Un’s diplomatic strategy in the past decade. International sanctions – particularly those enforced in 2017 in response to the DPRK’s nuclear test and intercontinental ballistic missile (ICBM) launches—have severely impacted the long-term potential of Kim’s market-driven initiatives. These sanctions limited imports and exports, blocked all foreign investment, and reduced trade volume by $4.64 billion between 2017 and 2020. These numbers help demonstrate why the failure to reach an agreement during the Hanoi Summit in February 2019 significantly altered the course of US-DPRK relations—highlighting that the success of market reforms is intrinsically linked to the availability of economic opportunities and the external factors that influence them.
Just two months later, in April 2019, Kim Jong Un proclaimed a return to the principle of self-reliance. After closing its borders in 2020 to prevent a COVID-19 outbreak, the regime intensified its drive towards centralization and self-sufficiency, further hindering the economic reform process. Imports of essential goods, fuel and other basic commodities, plummeted, causing widespread shortages and soaring prices. According to the Bank of Korea, the country’s GDP shrank by 4.5 percent in its first year of border closures—the worst figure since 1997—only to slightly improve to -0.2 percent in 2022. In many cases, Kim’s policy of greater centralization and self-reliance ended up amplifying the effects of international sanctions, making it difficult to determine which of the two factors had the greater impact on economic contraction.
In this context, the economic policy adopted by Kim’s regime in the post-pandemic era has been twofold: on the one hand, selective engagement with strategic partners—mainly China and Russia—and, on the other, strict internal discipline, with a clear priority given to military spending. Despite limited outward openings, the regime has maintained tight control over private markets and cross-border commercial activities, while stepping up illicit cyber activities. Notably, China remains North Korea’s top trading partner, and its relations with Russia continues to intensify. According to various sources, this involves exchanging military support in the Ukrainian conflict for raw materials, military equipment, and financial assistance. Domestically, the government has prioritized the revitalization of the defense industry, while simultaneously reinforcing the national nuclear program. This is reflected in the advancements in military capabilities, including the execution of ballistic missile tests and the deployment of upgraded naval vessels—all of which demonstrate a strong commitment to enhancing national security. Outside of the “20×10 Regional Development Policy” announced in January 2024, a strategy aimed at reviving local industries throughout the country over the next decade, few other initiatives have been aimed at improving the domestic civilian economy.
Pyongyang’s Strategic Approach: Navigating Opportunities with Washington
The June 2018 Singapore Summit was politically significant for the United States and the DPRK. The summit effectively highlighted, albeit temporarily, a shift from confrontation to cooperation after a long history of diplomatic engagement that began in the 1990s. According to a White House press release, the summit represented a “momentous event of great significance in overcoming decades of tension and hostility” and “opened a new future trajectory” for the two countries. In a joint statement after the event, Kim Jong Un restated his commitment to the “complete denuclearization of the entire Korean Peninsula,” reiterating his pledge from the 2018 Panmunjom inter-Korean declaration. The summit, therefore, marked a significant step in the “confidence-building” process between the two countries. For Pyongyang, it was an effort to end Washington’s so-called hostile policy and challenge the perception of North Korea as the “enemy” above the 38th parallel. It also enabled Kim Jong Un to be recognized as an “equal player” on the global stage.
Although Kim has recently focused more on the munitions and defense industries—particularly the nuclear sector—rather than the civilian economy, North Korea could quickly transition back towards a policy that emphasizes the civilian sector if conditions become more conducive to economic development again. After all, in the early years of his leadership, Kim Jong Un was an “economically-oriented” leader, implementing a series of market-oriented reforms aimed at fostering tangible economic growth. He quickly shifted away from the byungjin policy in 2018 towards one centered exclusively on the economy after certain milestones in the nuclear program were achieved. Moreover, the dramatic change in attitudes toward engagement from President Trump’s “fire and fury” speech at the UN General Assembly in September 2017 to Kim’s decision to participate in the Pyeongchang Olympics and Paralympics in January 2018 and begin serious inter-Korean talks, took five months, demonstrating Kim’s willingness to pivot as conditions change.
Kim Jong Un’s ultimate goal appears to be to enable economic growth but not in a way that sacrifices its national security. If policies are merely tactics to achieve desired outcomes, it is necessary to consider the possibility that North Korea may be willing to adopt a flexible policy that prioritizes national defense construction when it is necessary to protect national interests (which reflects North Korea’s official portrayal of the byungjin policy). Conversely, it might prioritize diplomacy when there is potential to enhance national interests through negotiations with key countries, including the United States.
Economic Implications of Potential New Talks
Although the resumption of negotiations with North Korea is not guaranteed, given the significant changes in the geopolitical landscape since 2019, the prospect of renewed high-level diplomatic talk should not be entirely dismissed. Since taking office in January 2025, President Trump has repeatedly expressed his willingness to resume dialogue with Pyongyang. However, North Korea’s stance appears to be less accommodating. At the end of July, Kim Yo Jong issued a statement dismissing the US’s intention to revive diplomacy as long as this focuses solely on denuclearization of the Korean peninsula. Her remarks indicated that North Korea might return to the negotiating table, but only under two conditions: Washington acknowledges the country as a nuclear weapons state, and it offers a new approach to dialogue.
In light of recent developments, Washington should adopt a strategy aimed at establishing a stable coexistence to ease tensions while maintaining deterrence. One method involves developing economic incentives aligned with Kim Jong Un’s evolving economic priorities and ambitions. Trade and economic considerations have always played an important role in diplomatic engagement, and North Korea is no exception. This aspect can be traced back to the 2019 Hanoi Summit, when Kim called for complete relief from sanctions affecting civilian sectors, imposed by the UN Security Council, which had cut off almost all the economic ties with the international community. Given Kim’s emphasis on selective modernization projects and market-oriented initiatives, economic incentives could serve as a foundation for ongoing engagement if framed as tools that do not undermine the regime’s security.
Washington could propose the gradual lifting of UN sanctions affecting the DPRK economy, provided that a mutually agreed timeline is in place. This process would depend on North Korea taking specific symbolic actions, such as progressively halting ICBM launches capable of reaching the US homeland. The enforcement of these sanctions has had an adverse effect on various economic indicators, thereby undermining the long-term viability of Kim Jong Un’s market-oriented initiatives. In addition, President Trump could propose partially lifting US financial sanctions to allow narrowly controlled and approved foreign direct investment (FDI) into North Korea. This would be subject to the condition that FDI is directed towards strengthening specific sectors—agriculture, healthcare, and light industry— aimed at improving the lives of the local population. Another possible measure could be introducing limited, coordinated and ad-hoc development projects in the aforementioned sectors to enhance domestic industrial capability. This would involve introducing new, more sophisticated techniques to the country, such as agricultural grids and renewable energy sources, while still preventing direct access to sensitive technologies that could be used for other purposes. Moreover, this approach has another advantage: although the DPRK has strengthened its ties with Russia and China and has made recent gains through illicit online activities, it may still find it beneficial to diversify its sources of economic growth rather than relying solely on partners that impose asymmetrical or limited conditions.
Should the Trump administration embrace a more flexible approach, identifying North Korea’s priorities for talks—like economic incentives—tailored to Kim’s long-term objectives instead of adhering strictly to a “total nuclear disarmament” strategy, the prospect of renewed dialogue between Washington and Pyongyang could increase. While such approach would not replace the goal of denuclearization, it could lay the groundwork for establishing a framework of trust through an “action-for-action” approach. Ultimately, the timing and likelihood of a meeting between Kim Jong Un and President Trump will depend on the interplay between economic interests and political considerations.