Chinese drills around Taiwan could disrupt global supply chains

China’s military exercises around Taiwan could disrupt one of the world’s busiest maritime zones. Even a slight restriction of the passage of ships through the Taiwan Strait can affect supply chains. This was reported by Bloomberg.

The Taiwan Strait is the main artery for shipping from China, Japan, South Korea and Taiwan to the West. Semiconductors, electronic equipment manufactured in East Asia, as well as gas are shipped in this strait.

In the first 7 months of 2022, almost half of the world’s container fleet and 88% of the world’s largest ships have passed through this route.

“Any actions over Taiwan that affect the strait would be another blow to global shipping. Supply chains, which have been reeling since the start of the pandemic, have been struggling to recover this year from lockdowns in China’s cities and Russia’s invasion of Ukraine,” the message says.

The closure of these transport routes – even temporarily – will harm not only Taiwan, but also trade flows from Japan and South Korea. Concerns about a supply disruption have sent Taiwan’s shipping and airline stock index down 4.6% since the start of the week.

The tensions are taking place in the northern, eastern and southern regions of the Taiwan Sea. Ships could pass along the east coast of Taiwan through the Philippine Sea, but due to the ongoing typhoon season, it is risky to send ships that way. Some companies continue to stick their schedule.

“We don’t see any impact from the tensions over this period and we don’t have any plans to change routes,” said companies that did not panic.

At the same time, according to the vice president of S&P Global Maritime & Trade and Supply Rahul Kapoor, the disruption to navigation in the Taiwan Strait will be short-term.

China, as the world’s largest exporting country, could suffer heavy losses in the event of military action in the strait that disrupts its commercial ties with the world.

“Blocking the entire strait would be very difficult and risk a confrontation that ultimately may work to China’s disadvantage,” said Carl Schuster, a former operations director at the US Pacific Command’s Joint Intelligence Center. “Doing it once would make a very important and symbolic political-military point, but I don’t think Xi Jinping is that confident this administration would do nothing.”

China began military tensions on the coast of Taiwan amid tensity between the United States and China. The situation escalated in connection with the recent visit of the Speaker of the US House of Representatives Nancy Pelosi to Taiwan. China considers Taiwan part of its territory and has promised “serious consequences” in response to a third US official’s visit.

As GMK Center reported earlier, Russia’s aggression against Ukraine partially violated the entire world trading system. In May, S&P Global predicted that global supply chains would begin to recover no earlier than 2023, but due to the growing conflict between China and Taiwan, the situation may not change for the better.