China’s military exercises in Taiwan threaten world trade

(CNN Business) — China’s live-fire military exercises around Taiwan threaten to disrupt trade and travel in East Asia, forcing shipping to divert from one of the world’s busiest river routes and further straining already strained global supply chains.

This Thursday, China began its training with the participation of the Navy, the Air Force and other military bodies in the sea and airspace surrounding Taiwan. These exercises ––unprecedented in number–– are a direct show of force in response to the visit of Nancy Pelosi, Speaker of the United States House of Representatives, to the autonomous island. A trip against which Beijing repeatedly warned.

The Chinese Ministry of Defense published on Tuesday a map of six areas around the island, where it reported that it would carry out air and sea exercises, as well as long-range live fire training that will last until Sunday. In that sense, ships and planes were warned to stay out of those areas during military drills.

For its part, Taiwan pointed out that these exercises are equivalent to a “sea and air blockade”, in addition to violating “the territorial waters of Taiwan and its contiguous zone”.

They also threaten to disrupt trade flows on one of the world’s busiest shipping lanes.

The importance of the Taiwan Strait and the pulse of China

The Taiwan Strait, a 177-kilometre-wide artery separating the island of Taiwan and mainland Asia, is a key trade route for ships carrying goods between major Northeast Asian economies such as China, Japan and South Korea. , and the rest of the world.

VesselsValue, a London-based shipping consultancy, said there are currently 256 container ships and other vessels in Taiwan’s territorial waters. And he added that it is estimated that another 60 will arrive between this Thursday and Sunday, just when the military exercises will take place.

Tension between China and Taiwan over Pelosi 1:10

“There is potential for substantial disruption to trade in the region,” said Peter Williams, trade flow analyst at VesselsValue.

Shutting down trade routes around Taiwan, even temporarily, “raises concerns about whether China could successfully do it again. And also about what this could mean, not just for future trade, travel and economic patterns.” but for potentially defensive and security scenarios,” said Nick Marro, lead global trade analyst at The Economist Intelligence Unit.

The future repercussions of China’s exercises near Taiwan

It is not yet clear what the long-term impact will be. However, carriers already anticipate delays due to route changes, potential lost sales and higher costs for workers who must put in more hours.

Container ships, oil tankers and bulk carriers currently in Taiwanese territorial waters.

Global supply chains have already taken a hit from the pandemic and the war in Ukraine, which disrupted the flow of goods and triggered inflation in many parts of the world.

Any conflict in Taiwan, which dominates the semiconductor industry, could exacerbate the global shortage of computer chips. Precisely, vital components for practically all modern electronic devices.

Taiwan has seven major ports. The port of Kaohsiung, located on the southwestern coast, is the largest in Taiwan and the 15th largest in the world, according to the World Shipping Council.

The Taiwan Maritime and Port Bureau issued three notices on Wednesday, asking ships to use alternate routes to ports in Keelung, Taipei, Kaohsiung and other cities.

Changes in international flight routes

In addition, Taiwan diverted 18 international flight routes after negotiations with Japan and the Philippines. About 300 flights would be affected due to the route changes, Taiwan’s Transportation Minister Wang Kwo-tsai said Wednesday.

“The repercussions are not over: they are just beginning,” said Clifford Bennett, chief economist at ACY Securities, an Australian brokerage firm.

“Any setback in the Taiwan-China relationship as a result of Pelosi’s visit will be much worse,” he added.

China has already hit Taiwan with some trade restrictions since Wednesday. Among them, the suspension of some imports of fruits and fish from Taiwan and exports of natural sand to the island.

The entire event may “continue to reverberate and cause further damage for months, even years, to both Taiwan and US relations with mainland China,” Bennett said.

CNN’s Wayne Chang, Shawn Deng, Brad Lendon and Hannah Ritchie contributed to this report.

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