China’s ‘new normal’ for Taiwan raises fears for global trade

This article originally appeared in Al Jazeera on August 11, 2022.

By Liam Gibson.

As the howl of missile fire pauses over the Taiwan Strait, a new enduring risk to global trade is surfacing.

Sustained shipping disruptions caused by frequent Chinese military activity around Taiwan could become what experts call a “new normal” for the crucial trade route.

As Beijing extended its military drills from Sunday through to Wednesday, Chinese state media reported exercises that transgress the strait’s median line would from now on be a “regular” event.

On Wednesday, China also released a new white paper on “reunification” with the self-governing island that issued specific warnings to “Taiwanese independence forces,” and detailed the role of the United States in counteracting China’s efforts towards that goal.

“We have now moved into a qualitatively new state of affairs and the resolution of the ‘Taiwan question’ is actively in motion,” Andy Mok, a senior research fellow at the state-backed Center for China and Globalization, told Al Jazeera. “We don’t know what the length or magnitude of the drills will be … some say the blockade has already started.”

The risk of escalation poses a grave challenge to international trade.

China’s drills, which were sparked by US House of Representatives Speaker Nancy Pelosi’s visit to the island last week, have demonstrated that Beijing has the capacity to inflict enormous disruption to global trade flows should it so choose.

Already this year about half of the world’s container fleets and nearly 90 percent of its largest vessels by tonnage have passed through the Strait, which facilitates the flow of goods between East Asia and global markets.

Shipping data showed vessels had largely resumed their normal routes through the strait this week. But if China’s military activities evolve into an ever-present risk, the industry may find itself scrambling for contingency plans.

Peter Sand, the chief analyst at shipping intelligence platform Xeneta, said finding alternatives to the Strait would come with a significant price tag.

“Exporters may seek a second-best option if free undisrupted trade in and out of Taiwan becomes difficult,” Sand told Al Jazeera.

“For carriers, they will rearrange their service offerings to customers, some will no longer call on Taiwan, some will do so at lower frequency.”

“If the Taiwan Strait becomes an area without free passage – all routes will become extended, transit times will go up and goods will take even longer to get to consumers,” Sand added. “Freight rates will be most affected in the short term, before a ‘new normal’ for trade lanes in the region is established.”

Deborah Elms, the executive director of the Singapore-based Asian Trade Centre, said firms would be reluctant to shift operations if they are facing “a short-term problem” due to the amount of time and effort involved in establishing shipping routes.

“Change is extra hard under challenging economic circumstances,” Elms told Al Jazeera. “Hence firms are mostly waiting to see if they have more clarity on the depth, scope and duration of whatever happens next.”

Blockade intervention

The disruption in the event of a blockade that brought shipping to a complete halt could be enough to spur calls for international intervention.

“If the Chinese impose a full or partial blockade, the United States should work with like-minded countries in Asia and beyond to ensure that Taiwan is resupplied with adequate critical goods,” Elbridge Colby, a former high-ranking US defence official, told Al Jazeera.

“This may necessitate challenging China’s blockade, but this would be necessary.”

Colby, however, cautioned against “symbolic activity” at present that could ratchet up tensions and could heighten the risk of conflict.

“This is a time for speaking softly and carrying a big stick, not flapping our wings,” he said.

In April, the head of the world’s largest shipping firm, V.Group, requested NATO forces to escort trade vessels into the Black Sea, citing safety risks due to Russia’s invasion of Ukraine.

Shipping firms, however, are typically weary of such measures except as a last resort due to their reluctance to enter dangerous areas such as conflict zones, according to industry analysts.

“If the US navy sets up a corridor in Taiwan Strait, it will be used by some, but I would still expect other more prudent owners and operators to shy away,” said Sand.

China itself relies on trade through the Strait to sustain its economy. Shipping publication Lloyd’s List warns of the self-inflicted damage ongoing interruptions would do to state-owned China Ocean Shipping Company (COSCO), China’s largest shipping fleet and the fourth-largest globally. The ports of Shanghai, Shenzhen, Ningbo and Guangzhou, each of which ranks among the world’s five largest, all sit along the seaboard opposite the Strait.

“China will act with caution and I don’t expect the present situation to escalate out of control,” Sand said. “Having said that, tensions will remain elevated going forward.”

Although throwing a spanner in the works of global trade would cause China significant harm, some observers note Beijing’s increasing prioritisation of political objectives above economic goals. That willingness to sacrifice economic growth has included sticking to a draconian “zero COVID” strategy that continues to shut down large parts of the country.

“The Chinese government under Xi Jinping has shown a willingness to forego short or even medium-term economic interests for the sake of securing its political objectives,” said Mok, the think-tank fellow.

“Reunification by force does not necessarily mean a full-scale amphibious invasion. What I likely think it will mean first is an aerial and naval blockade of Taiwan.”

Mok said he did not expect Beijing to officially announce a blockade, acknowledging that doing so would give the US a clearer rationale on which to intervene, which would not be to China’s advantage.

“The ‘grey-zone operations’ China has demonstrated are of a piece with this,” he said, referring to actions calibrated to assert territorial claims without risking armed conflict.

Elms said that while Asian governments, in particular, have usually prioritised economic goals, that is not always the case.

“Governments can endure significant economic consequences of decisions if they feel strongly enough about it,” she said.

Source: Al Jazeera