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Trump and Kim’s War of Words Has Asia on Edge as Stocks Fall

The escalating war of words between U.S. President Donald Trump and North Korean leader Kim Jong Un sent Asian markets tumbling as the region braced for more provocations from his regime next week.

Prime Minister Malcolm Turnbull said Australia would back the U.S. if North Korea attacked, while China called on both countries to avoid taking the “old road” of taking turns to escalate tensions. Japan, meanwhile, moved missile interceptors into place after North Korea threatened to fire rockets at Guam, the Nikkei newspaper reported.

“The United States has no stronger ally than Australia,” Turnbull said in a radio interview on Friday. “In terms of defense, we are joined at the hip.”

Trump is ramping up pressure on North Korea, cautioning Kim’s regime against following through on threats to fire missiles near Guam and vowing “fire and fury” if he keeps provoking the U.S. On Thursday, the president doubled down on the rhetoric, saying Kim “should be very nervous” and suggesting the earlier warning didn’t go far enough.

Saber Rattling

The saber rattling has shaken global markets, with European stocks slumping on Friday following a sell-off in Asia as investors sought safe-havens. The CBOE Volatility Index climbed to the highest level since Trump’s election victory, while gold hit a two-month high.

“China hopes that related parties will speak and act with caution, doing more to alleviate the tense situation and enhance mutual trust,” Foreign Ministry spokesman Geng Shuang said in a statement on Friday. “They shouldn’t take the old road of taking turns to show strength and continuously escalating."

Some analysts expect further escalation in the coming days as both North and South Korea celebrate the Aug. 15 anniversary of the end of Japan’s occupation of the Korean Peninsula, and the latter conducts joint military exercises with the U.S. from Aug. 21.

‘Absolute Bedrock’

Australia acts as a vital stepping stone for the U.S. into Asia, hosting its intelligence bases and more than 1,200 Marines stationed in the northern port city of Darwin. Australians have fought alongside Americans in every major conflict since World War I, and are currently aiding the mission to destroy Islamic State in the Middle East. 

Malcolm Turnbull

Photographer: Jason Alden/Bloomberg

Even though Turnbull has clashed with Trump this year over Australia’s refugee-resettlement policy, the prime minister has declared his nation’s partnership with its major ally unshakeable. The alliance was formalized in 1951 with the Anzus Treaty, which originally included New Zealand.

“If there is an attack on the United States by North Korea, then the Anzus Treaty will be invoked and Australia will come to the aid of the United States,” Turnbull said in radio interview on Friday. “The American alliance is the absolute bedrock of our national security.”

The Chinese state-controlled Global Times said in an editorial published on Thursday night that Beijing should stay neutral if North Korea provoked the U.S. into war. It also said that China would intervene if the U.S. and South Korea sought to attack North Korea and topple his regime.

“China will also strengthen coordination with Russia, and to push forward the mutual strategic goal of anti-nuclear and anti-war,” the editorial said. “We need to make other parties believe, these two powers will not sit around and do nothing when the escalation of tensions in the Korean Peninsular threaten China and Russia’s national security.”

UN Sanctions

Trump has taken an aggressive stance toward North Korea, despite efforts by Secretary of State Rex Tillerson to tamp down rhetoric. Trump held meetings with Vice President Mike Pence, National Security Adviser H.R. McMaster and White House Chief of Staff John Kelly to discuss the situation Thursday.

The U.N. Security Council unanimously adopts a sanctions resolution against North Korea on Aug. 5.

Photographer: Kyodo News via Getty Images

The escalating rhetorical exchanges between the U.S. and North Korea were sparked, in part, by the Aug. 5 unanimous vote in the United Nations Security Council to impose new sanctions on the Kim regime. Trump indicated that he expected China to do more.

Meanwhile, the Japanese government has begun preparations to deploy Patriot interceptors in western regions that would be along the flight path of any missiles aimed toward Guam, which hosts key U.S. military facilities, the Nikkei newspaper reported Friday. 

The U.S. and Japan have also begun a scheduled joint military exercise on the northern island of Hokkaido. The exercise is set to run through Aug. 28 and involves more than 3,500 Japan and U.S. military personnel, according to the U.S. Pacific Command.

Defense Secretary James Mattis said on Thursday that the U.S. works closely with its allies to ensure that any military response wouldn’t be unilateral. Later in the day, he said the impact of a conflict “would be catastrophic.”

“My responsibility is to have military options if they be needed,” Mattis said during a visit to Pentagon’s DIUx unit in Mountain View, California. However, the U.S. effort was “gaining diplomatic results and I want to stay right there, right now.”

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