Taiwan Strait Conflict Would Send Shockwaves Through Global Economy: Report

People stand on a viewing platform overlooking the Taiwan Strait on Pingtan Island, Fujian Province, China, on April 10, 2023. Thomas Peter/Reuters

A conflict over the Taiwan Strait would have far-reaching consequences for the global economy, a Washington-based think tank warned, based on its estimates of trade flows through the narrow body of water separating China and Taiwan in 2022.

The Center for Strategic and International Studies (CSIS) explained that there had been a lack of “publicly available, academically rigorous estimates of trade flows” through the Taiwan Strait, prior to the publication of its report on Oct. 10. The report’s researchers used a “unique methodology” and found that the strait accounted for over a fifth of global maritime trade in 2022, or about $2.45 trillion.

“This report shows the immense importance of the Taiwan Strait to international commerce and demonstrates the scale of the economic consequences should Beijing upset the fragile stability in the strait by using force against Taiwan,” the researchers wrote.

“For Washington, working closely with allies and partners to maintain cross-strait stability is essential to safeguarding international trade.”

China’s communist regime is threatening to seize Taiwan, on the belief that the self-ruled island is a renegade province that should be united with the mainland. In March, Adm. John Aquilino, then-head of the U.S. Indo-Pacific Command, said he believed the Chinese military would be ready to invade Taiwan by 2027.

On Oct. 14, Taiwan’s defense ministry condemned China for its “irrational and provocative actions” after China’s Eastern Theater Command announced joint military exercises around the island.

A Taiwan Strait conflict would force shipping companies to reroute, leading to delays and price increases for consumers, the researchers said.

“Disruptions to this trade would send shockwaves well beyond Taiwan and China, impacting key U.S. allies and broad swaths of the Global South,” the report said.

The researchers found that China was the country most dependent on the strait, with about $1.3 trillion of its goods passing through in 2022.

“If the Taiwan Strait is completely impassable to merchant ships, vessels bound for China could reroute, but if they are forced to go through the Miyako Strait, this could leave China susceptible to a distant blockade by U.S., Japanese, and other forces seeking to deprive China of trade,” the researchers wrote.

Countries

Two key U.S. allies, Japan and South Korea, would be among the countries most affected by disruptions in the strait, the report said, based on 2022 trade data.

Japan depended on the strait for 25 percent of its exports and 32 percent of imports, totaling nearly $444 billion. South Korea relied on the strait for 23 percent of its exports and 30 percent of imports, reaching about $357 billion.

The report noted that Japan and South Korea import vast amounts of oil, gas, and coal through the strait each year. Both nations are also heavily dependent on the strait for shipments of electronics and machinery, the report added.

Australia was also deeply dependent on the strait in 2022. According to the report, nearly 27 percent of Australia’s exports, or $109 billion of goods, passed through the strait, among which 83 percent were iron ore, coal, and liquefied natural gas.

“Crucially, though, the extent of the pain for Australia would likely depend on the extent of Chinese aggression,” the researchers wrote. “During a quarantine or blockade, Australia may continue selling iron ore and other goods to China while absorbing some of the costs from rerouting away from the waters around Taiwan.

“In a wide-scale war over Taiwan, the issue may be moot as Canberra could withhold exports of iron ore and other goods to China in response.”

The CSIS has previously published two reports analyzing different scenarios in which Beijing could either impose a quarantine or mount a blockade against Taiwan. Under the quarantine scheme, China would deploy its Coast Guard vessels to enforce its customs rule around Taiwan. In terms of a blockade, China would try to deprive Taiwan of its energy needs by stopping some of its imports of oil, natural gas, and coal.

Countries outside of Asia were also dependent on the strait in 2022, the report said.

The BRICS countries, excluding China, relied on the strait for about 14 percent of their imports and 15 of their exports.

Oman, Saudi Arabia, Iraq, Kuwait, Qatar, and Yemen all utilized the strait for over 30 percent of their exports.

Japan was the top user of the strait among the G7 nations. The United States was second with $54 billion of its exports and $100 billion of its imports going through the strait in 2022.

In Africa, the Democratic Republic of the Congo, Gabon, Eritrea, and Angola were the top users of the strait in 2022, according to the report.