The cost of a conflict between Taiwan and China for the maritime industry

According to a recent assessment, if China carries out its threats to invade Taiwan, the shipping industry should prepare for a major crisis that would increase operating costs, result in lost ships and cause delays.

At the same time, research by George Mason University’s Mercatus Center predicts that China will sever undersea Internet cables, which are vital to the semiconductor sector and serve as a vital data conduit between Asia and North America. The study uses Chinese data to present different scenarios and their impact on the global economy as tensions between China and Taiwan have increased recently. The authors claim that the People’s Liberation Army of China has planned hundreds of scenarios as part of the nation’s long-held aspirations for reunification.

Any invasion will have a massive global impact on trade and the world economy.

If an invasion does occur, they predict it will have significant commercial and economic repercussions that may even be greater than the Russian invasion of Ukraine. According to the analysis, the US economy is likely to suffer the most as it is heavily dependent on the economies of the two Asian countries, both in terms of trade volume and the value the two countries share.

According to the investigation, a cross-strait crisis could result from China’s direct invasion of Taiwan, Taiwan’s declaration of independence, or an unintentional collision at sea between China and Taiwan or the United States

They conclude that the outcome would pose two immediate risks to the US economy. The first would be delays or disruptions in container shipments in the Taiwan Strait, South China Sea and East China Sea. The second risk would be the possibility of digital flow disruptions from undersea cables, which are vulnerable and have landing stations in Taiwan.

“The potential impact on the US economy of a Chinese invasion of Taiwan is far greater than that of a Russian invasion of Ukraine. Container shipments to and from major ports in the region and digital flows would be directly at risk.” writes Senior Research Fellows Christine McDaniel and Weifeng Zhong at the Mercatus Center.

Volume of container throughput on direct cross-strait routes in Taiwan in 2020, by port (in 1,000 TEU)

The Taiwan Strait, one of the busiest waterways in the world, would experience significant disruption to container shipping operations in the event of a Chinese invasion, the analysis said.

The analysis cites figures showing that $3.4 trillion, or 21% of world trade, has traveled through the South China Sea, using the Strait of Taiwan as a crucial link. Containerized cargo to or from major ports in China, Japan, the Philippines, South Korea, Taiwan and Vietnam may be affected by the disruption. As it is the shortest sea route between the Indian and Pacific Oceans, the Strait of Malacca is one of the busiest shipping routes, according to the study.

An invasion would cause delays or a rerouting of cargo routes that normally pass through the Taiwan Strait. Any conflicts would lead to an increase in insurance costs, as observed with bulkers and other vessels in the Black Sea. Rerouting to avoid the war hazard premium is an option, but the authors point out that doing so would increase prices and increase shipping times. It is predicted that rerouting all traffic around the Strait of Malacca will cost between $279 million and $2.8 billion per month.

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