1

THAAD’s Deployment:
The Effect of Economy Sanction Towards China’s Relation with South Korea
Pitra Kinasih1

Abstract

Sehari setelah Korea Selatan mengeluarkan pernyataan untuk memasang sistem pertahanan
misil di wilayahnya, Cina memberlakukan sanksi ekonomi yang cukup keras terhadap negara
pimpinan Moon Jae In tersebut. Hal ini dikarenakan Cina khawatir bahwa radar yang terdapat
pada sistem dapat digunakan untuk melacak kapabilitas militer Cina yang notabene dekat
dengan wilayah Korea Selatan. Namun, setelah diberlakukannya sanksi ekonomi dalam
berbagai bidang yang menyebabkan kerugian besar terhadap negaranya, pihak Korea Selatan
tetap enggan untuk mengajukan konsesi hingga akhirnya Cinalah yang mengembalikan
hubungan kedua negara seperti sedia kala. Tulisan ini ditujukan untuk menganalisa dinamika
hubungan Korea Selatan dan Cina setelah instalasi sistem pertahanan misil dan tingkat
efektivitas dari diberlakukannya sanksi ekonomi.

Keywords: THAAD, Economy sanction, South Korea, China

Introduction

On July 2016, South Korea deputy defense minister for policy Yoo Jeh-seung with the
commander of US forces Lt Gen Thomas Vandal announced that South Korea would deploy a
missile defense system after its neighboring country – North Korea – launched a nuclear and
long-range rocket test earlier.2 There was also fear that Pyongyang’s ever growing development
of ballistic missiles and nuclear-armed weapons of mass destruction could endanger the countries

1 Pitra Kinasih is a student of International Relations in Brawijaya University with a NIM of 155120407121042
2 Staff and Agency, South Korea and US agree to deploy THAAD missile defense system, The Guardian, July 8, 2016,
https://www.theguardian.com/world/2016/jul/08/south-korea-and-us-agree-to-deploy-thaad-missile-defence-
system (accessed December 16, 2017)
 2

around it especially South Korea – seeing that it had no defense system had an attack or war
broke out in the area.

This program, though, had garnered anger and friction from South Korea’s close economy ally,
China, with concern that it would jeopardize its strategic security situation. Its dismay was
subjected to the fact that South Korea’s defense system was accompanied by the powerful X-
band AN/TPY-2 radar that could be linked to other theaters and homeland missile defense
systems around the region and degrade China’s PLA Rocket Force’s ability to carry out a
nuclear.3 Or in other words, the radar could be used as a tool to spy on China’s economy
capabilities, given the close location between the two countries.

The Terminal High Altitude Area Defense (THAAD) system was introduced by the United states
as a defense system which has the capability to protect against short- and medium-range ballistic
missiles fired at a certain area by intercepting them high in the Earth’s atmosphere, or outside it. 4
This was a mere defense mechanism without having the ability to counter back at opponents. The
$1.6 billion defense system is set to fully operates in late 2017.5

After China’s disagreement on the deployment of THAAD, the growing tension between the two
economy partner began to rise and the steadily growing relationship that had been built for the
last couple of years fell off a cliff within second. Although both South Korea and the US had
already assured that this program was nothing more than just a protection from North Korea
missile and nuclear that threatens the lives of the people and US’s military assets in South Korea
without targeting any third-party nation.6 To further proof this assurance, the U.S. even invited
China’s representative to come to Washington for a technical meeting for showing how THAAD
actually operates to which Beijing declined the offer.7

3 Ankit Panda, China and South Korea: Examining the Resolution of the THAAD Impasse, The Diplomat, November
13, 2017, https://thediplomat.com/2017/11/china-and-south-korea-examining-the-resolution-of-the-thaad-
impasse/ (accessed December 16, 2017)
4 Jack Kim, South Korea, U.S. to deploy THAAD missile defense, drawing China rebuke, Reuters, July 7, 2016,
https://www.reuters.com/article/us-southkorea-usa-thaad/south-korea-u-s-to-deploy-thaad-missile-defense-
drawing-china-rebuke-idUSKCN0ZO084 (accessed on December 16, 2017)
5 Jung Sung Ki, South Korea Eyes THAAD Despite China’s Fear, Defense News, February 14, 2016,
https://www.defensenews.com/digital-show-dailies/singapore-airshow/2016/02/14/south-korea-eyes-thaad-
despite-chinas-fear/ (accessed on December 16, 2017)
6 Ankit Panda, op.cit
7 ibid
 3

Since the announcement of both sides regarding the deployment of THAAD, China’s President
Xi Jinping immediately took an economic sanction towards South Korea. Since South Korea
depends hugely on Chinese Market, it successfully decreased its Gross Domestic Product (GDP)
by 0,5% worth of $7.5 billion. While China experienced less income damage with ‘only’ $880
million, valuing at 0,01% loss.8 This economy sanction came to a shock for South Korean side
since China was its biggest export trading partner – even bigger than its relation with United
States and Japan combined.

Although there have also been some opposition posed by the domestic netizen itself regarding
the THAAD installment. Since the city that would be planted with the system would face some
worries that it might spread some kind of radioactive components that could harm the locals. The
location of THAAD deployment would also impose a greater danger for the city once an attack is
being fired from North Korea since it would be directed right through the area.

After the illustration above, a question emerged, “how does China’s response to South Korea’s
deployment of THAAD affect their relation?”

Economic Sanction Theory

Economic sanction has long been used by countries to reach a certain goal towards a country,
usually occurred when an imposing side is unhappy with a particular state that it wants them to
concede. In one of his earlier yet intriguing work, Daniel W. Dezner posed an Economy Sanction
theory in order to explain further when a country imposes economic retaliation.

One of his basic assumption of the theory is that if the ‘sender’ country’s loss is relatively small
in terms of its GDP while the ‘target’ country is the one that suffers the most on the imposing of
the sanction, it makes the sender country more likely to impose sanctions and the target country
more likely to offer concessions. It is also important to take the state of relations between the two
states and expectations about future discord into account. If the target country sees that the

8 Jane Perlez, China Blinks on South Korea, Making Nice After a Year of Hostilities, New York Times, November 1,
2017, https://www.nytimes.com/2017/11/01/world/asia/china-south-korea-thaad.html (accessed on December
16, 2017)
 4

coercion effort taken by the target country jeopardizes both countries’ relationship in the long
running, it will be more likely for the target country to concede.9

Another notable assumption is that economic coercion is expected to be more effective when the
target country is friendly towards the sender country and has the ability to withstand a higher
cost than the sender. Since it would reduce the tendency to rebel once the sanction is imposed.
Sanctions are also much less likely to get significant results if the target country is cautious of the
sender country and the gap in costs is big. The theory also predicts that the sender will rarely use
sanctions against relatively friendly states where the gap in costs is small.10

The Deployment of THAAD

On February 2016, Kim Jong Un signed a paperwork agreeing to launch a long-range rocket
carrying a satellite to orbit.11 The launching news was broadcasted in a national television and
described as “The fascinating vapour of Juche satellite trailing in the clear and blue sky in spring
of February on the threshold of the Day of the Shining Star”12. A South Korean news outlet also
reported that the North Korea has the technology for inter-continental ballistic missiles and is
preparing for a fifth nuclear test in the near future.

This news came to a shock for South Korea as hours after the launch testing ballistic missile
technology, South Korean representative told it would hold a formal talk with United States
regarding the deployment of THAAD. Actually from February 2014, a top U.S. military officer
in Korea had recommended the country to install an advanced albeit U.S. – made defense missile
system in order to protect itself from the ever growing security threat brought by North Korea. 13
But at that time, Seoul was reluctant to deploy the machinery in consideration of some reasons.
First, it already had a scheme of developing its own country-made missile defense system.
Second, South Korea worried that if it installed the THAAD system, it might also mean that it
9 Evan Hillebrand, Economic Sanctions and The Sanctions Paradox: A Post-Sample Validation of Daniel Drezner’s
Conflict Expectations Model (2013): p. 3
10 ibid
11 Anonymous, North Korea fires long-range rocket despite warnings, BBC, February 7, 2016,
http://www.bbc.com/news/world-asia-35515207 (accessed on December 16, 2017)
12 ibid
13 Julian E. Barnes, Washington Considers Missile-Defense System in South Korea, The Wall Street Journal, May 27,
2014, https://www.wsj.com/articles/washington-considers-missile-defense-system-in-south-korea-1401233131
(accessed on November 17, 2016)
 5

would be joining an US-allied ballistic missile defense system in the region (to which its
reluctance was subjected to Japan who already joined the alliance beforehand). The last and the
most important reason was because it didn’t want to take the risk of upsetting China, its biggest
economy trading partner in the world.14

But the Deployment of the system kept on going as the installation of THAAD components were
deployed gradually from time to time. After the joint statement from U.S. and South Korea back
in 2016, the first major components to assemble THAAD first arrived in March 2017. The first
elements include two launchers that later would be transferred to a rural city located 296 km
from Seoul, that is Seongju.15 After that, on April 2017, the U.S. Forces Korea was reported
installing key components that included U.S.-made THAAD battery, including a powerful
AN/TPY-2 radar system and at least two missile launchers and interceptors.16 The installment
was met to a big protest from the Seongju residents, activists and members of religious sects.
Even out-of-town residents flocked on the installment site to protest as well. This was in concern
for health risks and local product that could be negatively affected by electromagnetic radiation
brought by one of the radar. They also worried that the site could be a direct target of North
Korean attack.17

After months of installation, on October 2017, the U.S. Forces Korea finally announced that
THAAD is now fully integrated in into air defense of South Korea.18

China’s Economic Sanction Towards South Korea

Before the official announcement of THAAD system by the U.S. and South Korean
representative, China had already expressed its strong disapproval of the deployment of the
system. The very reason stated by Chinese side was because it feared that THAAD could mess

14 Ethan Meick, “China’s Response to U.S.-South Korean Missile Defense System Deployment and its Implications”,
U.S.-China Economic and Security Review Commission Report (2017): 4
15 Gabriel Dominguez, First elements of THAAD arrive in South Korea, Jane’s, March 8, 2017,
http://www.janes.com/article/68522/first-elements-of-thaad-arrive-in-south-korea (accessed December 17, 2017)
16 Sarah Kim, Thaad battery installed in dead of night, Korea Joongang Daily, April 27, 2017,
http://mengnews.joins.com/view.aspx?aId=3032721 (accessed on December 17, 2017)
17 ibid
18 Kim Gamel, THAAD now fully integrated into air defenses for South Korea, Stars Stripes, October 22, 2017,
https://www.stripes.com/thaad-now-fully-integrated-into-air-defenses-for-south-korea-1.493859 (accessed on
December 17, 2017)
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with its defense system since its radar could track and detect missiles up to 2000 km. 19 So, after
the declaration of the installment, China started to boycott South Korean products, goods,
services, and even tourism.

The first and the most significantly hit sector is tourism. On March 2017, the China National
Tourism Administration (CNTA) had ordered travel agencies in Beijing for a meeting and
instructed them to stop selling tour packages to South Korea, both online and offline. 20 This
come to a huge loss for South Korean side as China accounts to 48.6% of total foreign visitors
that come to South Korea in 2016.21 According to Bloomberg news, the Chinese Ban would cost
the country $4.7 billion loss based on a total of 2.3 million people with average spending of
$2,060 per visit in the same period last year. 22 This had cause a spiraling effect on the Korean
shopping market as well as one of the seller from Dongdaemun - a major shopping district –
reported that it had closed one of its three bag stores because the decreasing number of Chinese
buyers affected her selling number up to 80% loss.23

Another major hit was on the South Korean company, Lotte. Lotte is a mart superstore owned by
South Korean conglomerate which has 112 stores operating all over China with approximately
13,000 workers since it first opened in 2008.24 Upon the news of boycott, most of the stores had
been closed due to alleged fire safety issues. on October 2017, an executive of Lotte Grup said it
would sell all of its assets in China by the end of 2017 amidst political tension.25

19 Reuters Staff, Data Dive: How does the THAAD anti-missile defense work? Reuters, May 31, 2017,
https://www.reuters.com/article/us-datadive-thaad/data-dive-how-does-the-thaad-anti-missile-defense-work-
idUSKBN18R2JQ (accessed on December 17, 2017)
20 Anonymous, China Bans Trip Sales to South Korea, Yonhap News, March 2, 2017,
http://english.yonhapnews.co.kr/news/2017/03/02/0200000000AEN20170302012700320.html (accessed on
December 17, 2017)
21 Anonymous, South Korea Tourism Hit by China Ban, BBC, March 11, 2017, http://www.bbc.com/news/business-
40565119 (accessed om December 17, 2017)
22 James Mayger and Jiyeun Lee, China’s Missile Sanctions Are Taking a Heavy Toll on Both Koreas, August 29,
2017, https://www.bloomberg.com/news/articles/2017-08-29/china-s-missile-sanctions-are-taking-a-heavy-toll-
on-both-koreas (accessed on December 17, 2017)
23 Cynthia Kim and Adam Jourdan, Ghost stores, lost billions as Korea Inc's China woes grow, Reuters, September
12, 2017, https://www.reuters.com/article/us-northkorea-missiles-southkorea-china/ghost-stores-lost-billions-as-
korea-incs-china-woes-grow-idUSKCN1BN33V (accessed on December 17, 2017)
24 ibid
25 Reuters Staff, Lotte Group aims to sell Lotte Mart stores in China by year-end –exec, Reuters, October 11, 2017,
https://www.reuters.com/article/lottemart-china-sale/lotte-group-aims-to-sell-lotte-mart-stores-in-china-by-year-
end-exec-idUSL4N1MN16Y (accessed on December 17, 2017)
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The sales of other goods are also decreasing as Chinese government encouraged anti-South
Korean sentiment all over the country. The sentiment was brought by government-controlled
news media in a ‘brassy’ editorial, urging people to stop buying products from Korea. 26 This had
caused people to protest against South Korea business and swore to never eat Kimchi or Korean
Barbeque anymore. Booming Korean products such as face masks, cosmetics, skin care, and
processed food had seen a major drop on sales. Another significant drop is the usage of Korean-
manufactured car such as Kia and Hyundai as there were 300,000 less cars operating in China in
the span of January-June 2017 compared to 2016.27

Entertainment sector was also severely hit. Since the announcement, some of South Korean acts
have been cancelled with no apparent reason given by the organizers. Korean TV shows and
dramas were also taken out of air. Some Korean-made online games were also banned to be used
there as Chinese authority stopped granting its regulatory approval28

All of the loss that have to be endured by South Korean side amounts to $7.5 billion, a decrease
up to 0.5% from last’s year GDP. While China, in particular, only has to suffer a 0.05% loss of its
annual income to which it only accounts to $880 million loss. In accordance with the economy
sanction theory, where China had calculated precisely on the opportunity cost it would suffer
before imposing economic coercion towards South Korea. China as the sender country only
bears a small amount of economy cost, while South Korea as the target country has to endure a
much more painful set back in terms of its GDP. So, it predicted that by enforcing economy
coercion, Seoul would likely to concede and give Beijing what it wanted – to stop the
deployment of THAAD.

Other application of the theory includes its assumption that predicts economy sanction is more
significant if the target country is submissive of the sender country hence, the reduced value of
future rebellion acts conducted by target country. In regards of how South Korea sees China, it
was its biggest trading partner, its pop culture had even spread nationwide in China, both
countries’ relations were mostly in a positive light – except for its historical standpoint that
affected political circumstances. Since South Korea had always been more compliance most of
26 Javier C. Hernandez, South Korean Stores Feel China’s Wrath as U.S. Missile System Is Deployed, New York Times,
March 9 2017, https://www.nytimes.com/2017/03/09/world/asia/china-lotte-thaad-south-korea.html (accessed on
December 17, 2017)
27 James Mayger and Jiyeun Lee, op.cit.
28 Ethan Meick, op. cit
 8

the time, this economy sanction had taken its toll on its annual income that even small business
such as bag stores were starting to shut down. From this point, it seemed that China’s economy
sanction was looking to pan out.

But in late October 2017, China and South Korea had agreed to restore its economy relations to
the way it was while Seoul still gets to keep its THAAD defense system. 29 China stated that it
remains its stance on the THAAD issue and they both finally agree to disagree. Shi Yinhong,
a professor of international relations at Renmin University in Beijing and an authority on Korea
stated that while in the surface it might look like a mutual compromise between both countries,
but in substance, it is China – the sender country – who concedes. 30 This can be seen as South
Korea’s diplomatic victory over the THAAD saga. Mr. Moon of South Korea paid a visit to
China and met Xi Jinping on December 14, 2017, which marked the normalization of both
countries’ relation.31

One of the reason observed was because China doesn’t want to push South Korea further into a
trilateral alliance in the region consisted US-Japan-South Korea by keep imposing the sanction
since it would create a strong alliance against it.32

Conclusion

South Korea’s decision to deploy a US-made missile defense system, THAAD, had sparked
disaffection from its closest economic partner in the region, China. Although long before its
decision to install the system had China already stated its disapproval, South Korea still couldn’t
be bothered and deploy one. This came to a huge shock for China as it immediately imposed the
banning of Korean products and other services in attempt to sought for concession. But after
some extensive measure of economic coercion, South Korea still stood firm on its ground and

29 Bryan Harris, China Rows Back on South Korea Economic Blockade, Financial Times, October 31, 2017,
https://www.ft.com/content/c145d12e-bdde-11e7-b8a3-38a6e068f464 (accessed on December 18, 2017)
30 ibid
31 Chang May Choon, Moon-Xi Summit a Good 'First Step' but Complete Thaw in Bilateral Ties Will Come Slowly,
Straits Times, December 15, 2017, http://www.straitstimes.com/asia/east-asia/moon-xi-summit-a-good-first-step-
but-complete-thaw-in-bilateral-ties-will-come-slowly (accessed on December 19, 2017)
32 Goh Sui Noi, Chinese Efforts to Mend Ties With South Korea May Have to Do With Strategic Calculations, Straits
Times, December 15, 2017, http://www.straitstimes.com/asia/east-asia/chinese-efforts-to-mend-ties-with-south-
korea-may-have-to-do-with-strategic (accessed on December 18, 2017)
 9

refuse to withdraw the system – although it experienced a major setback in terms of its Gross
Domestic Product.

Exactly a year and a half after the imposing of sanctions, China finally agreed to disagree in
regards of THAAD’s issue and offered normalization of both countries’ relation - even with
South Korea still deploying its defense system. This means a concession is made by the sender
country in which it implies that the uphold of economy sanction was met to a failing attempt.

Even though China’s calculation of South Korea’s high opportunity cost still had its chance on
downgrading the country’s economy, China can’t risk on losing South Korea by pushing the
country further to its traditional ‘enemy’, United States. The worth of losing a capable
neighborhood country will cost China so much more than any material value ever will.
 10

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