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The Costs of a Conflict Between Taiwan and China on the Maritime Industry

According to a recent assessment, if China follows through on its threats to invade Taiwan, the maritime industry should prepare for a major crisis that would increase operational expenses, result in the loss of ships, and cause delays.

At the same time, research from George Mason University’s Mercatus Center makes the assumption that China will disconnect underwater Internet cables that are crucial to the semiconductor sector and serve as a significant data conduit between Asia and North America. The research uses Chinese data to depict various scenarios and their effects on the world economy as tensions between China and Taiwan have risen recently. The writers claim that as part of the nation’s long-held aspirations of reunification, the People’s Liberation Army of China has planned hundreds of scenarios.

Any invasion will have massive global effects on trade and the global economy.

If an invasion occurs, they predict that it will have substantial commercial and economic repercussions that may even be greater than those of Russia’s invasion of Ukraine. According to the analysis, the U.S. economy will probably suffer the most because of its extensive exposure to the economies of the two Asian countries, both in terms of trade volumes and in terms of the value that the two countries share.

According to the research, a crisis in the Taiwan Strait might 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 U.S.

They come to the conclusion that there would be two immediate risks to the American economy from the outcome. The first would be delays or disruptions in container shipments in the Taiwan Strait, the South China Sea, and the East China Sea. The second risk would be the possibility of disruptions to digital flows from submarine cables that are vulnerable and have landing stations in Taiwan.

“The potential effects of a Chinese invasion of Taiwan on the U.S. economy are far greater than those of the Russian invasion of Ukraine. Container shipments to and from major ports in the region, as well as digital flows, would be at direct risk,” writes senior research fellows Christine McDaniel and Weifeng Zhong at the Mercatus Center.

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

The Taiwan Strait, one of the busiest water crossings in the world, would experience major container shipping operations disruption in the event of a Chinese invasion, the analysis claims.

The analysis quotes figures demonstrating that $3.4 trillion, or 21% of global trade, traveled through the South China Sea using the Taiwan Strait as a crucial conduit. Containerized cargo to or from important ports in China, Japan, the Philippines, South Korea, Taiwan, and Vietnam may be impacted by the disruption. Given that it is the shortest sea route between the Indian and Pacific oceans, the Straits of Malacca are one of the busiest shipping routes, according to the research.

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

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