China’s military exercises around Taiwan threaten to upend world trade

China started on Thursday. drill with the participation of the navy, aviation and other armed forces in the seas and airspace around Taiwan. Teachings – unprecedented in number – are a direct show of force in response to Speaker of the US House of Representatives Nancy Pelosi visit to a self-governing island, against which Beijing has repeatedly warned.
Ministry of Defense of China on Tuesday came out six zone map around the island, where he said air, sea and long-range live fire drills will be held until Sunday. Ships and aircraft have been warned to stay away from the areas during the exercise.

Taiwan said the military exercises amounted to a “sea and air blockade” and “violated Taiwan’s territorial waters and adjacent area.”

They also threaten to disrupt trade flows in one of the the busiest shipping lanes in the world.

The Taiwan Strait, a 110-mile-wide artery that separates the island of Taiwan from mainland Asia, is a key trade route for ships carrying goods between major Northeast Asian economies such as China, Japan, and South Korea and beyond. world .

London Shipping Consultancy VesselsValue said there are currently 256 container ships and other vessels in Taiwan’s territorial waters, and it is estimated that 60 more will arrive between Thursday and Sunday during the exercise.

“Major disruption to trade in the region is possible,” said Peter Williams, trade flow analyst at VesselsValue.

The closure of trade routes around Taiwan, even temporarily, “raises concerns about whether China can successfully do so again, and what this could mean not only for future trade, tourism, and economic patterns, but also for potentially defensive and security scenarios.” ‘ said Nick. Marro, Lead Global Trade Analyst at division of the Economist Intelligence Unit.

Does Taiwan have its own airspace?  China holds military exercises near island after Pelosi visit

Consequences ahead

It’s not yet clear what the long-term impact will be, but shippers expect delays due to re-routing, potential loss of sales and higher costs for workers working longer hours.

Figure 1: Container ships, tankers and bulk carriers are currently in Taiwan's territorial waters.

The pandemic and the war in Ukraine have already disrupted global supply chains, disrupting the flow of goods and driving up inflation in many parts of the world.

Any conflict in Taiwan, which dominates the semiconductor industry, could exacerbate the global shortage of computer chips, which are vital components in virtually all modern electronics.

Taiwan has seven major ports. The Port of Kaohsiung, located on the southwestern coastline, is Taiwan’s largest harbor and the 15th largest in the world. World Shipping Council.

On Wednesday, the Taiwan Maritime and Port Bureau issued three notices asking ships to use alternative routes for ports in Keelung, Taipei, Kaohsiung and other cities.

China hits Taiwan with trade restrictions after Pelosi visit

Taiwan changes international flight routes

Taiwan also rerouted 18 international flights after negotiations with Japan and the Philippines. About 300 flights will be affected as a result of the rerouting, Taiwan’s transport minister Wang Kwo-tsai said on Wednesday.

“The consequences are not over yet because they are just beginning,” said Clifford Bennett, chief economist at Australian brokerage ACY Securities.

“Much worse would be any slowdown in economic growth between Taiwan and China as a result of Pelosi’s visit,” he said.

China has already imposed some trade restrictions on Taiwan since Wednesday, including suspending imports of certain fruits and fish from Taiwan and exports of natural sand to the island.

The whole event could “continue to cause even more damage for months, if not years, to both Taiwan’s and the US’s relationship with mainland China,” Bennett said.

Wayne Chang of CNN Hong Kong, Sean Deng, Brad Landon, Beijing Bureau, and Hannah Ritchie contributed to this report.