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WASHINGTON: The global system of container ships and tankers that move tens of billions of dollars of products around the world each day mostly functions fluidly and without notice. But in a few parts of the world, shipping lanes shrink to narrow straits or canals, geographical choke points where an isolated disruption can threaten to throw much of international trade out of whack.
One of those is the Taiwan Strait, a 100-mile-wide strip of water between Taiwan and mainland China, which has become a critical shipping lane for countries across the globe.
New research from the Center for Strategic and International Studies, a Washington think tank, has found that the strait is a conduit for more than a fifth of the world’s seaborne trade, with $2.45 trillion worth of energy, electronics, minerals and other goods transiting the channel in 2022, the most recent year for which data is available.
The findings are significant given that the strait is at the center of a geopolitical dispute between Taiwan and China, which views the island as part of its territory. A blockade or military action from China that halted traffic in the strait could have dramatic implications for the global flow of goods, and the Chinese economy in particular, the researchers say.
The estimates come at a moment when geopolitics is upending years of relative complacency about global trade dynamics. Wars in Ukraine and the Middle East, as well as pandemic-era lockdowns, have reshuffled global trade patterns and alerted consumers to the idea that disruptions in one part of the world can directly affect economic activity in another.
In a report also released Thursday, the World Trade Organization said that the pace of global trade has been ticking up, but that rising geopolitical tensions and uncertainty over economic policy could drag it down.In particular, a widening conflict in the Middle East, the global center of oil production, could tangle shipping lanes and raise oil prices, the group said. That could make it harder and more expensive for people around the world to import the energy, food and other products they depend on.The organisation, which is based in Geneva, said it expected global goods trade to increase by 2.7% in 2024, slightly up from its previous forecasts, and 3% in 2025. That growth follows a contraction in 2023, when global trade fell by 1.1% amid higher inflation and rising interest rates.
The organisation said it had seen signs of global trade fracturing along political lines since the beginning of the war in Ukraine. Trade between countries that hold similar political views — based on voting patterns at the U.N. General Assembly — has grown 4% more quickly than trade between countries with differing views.
Ngozi Okonjo-Iweala, the group’s director-general, said the organisation remained vigilant about potential setbacks for trade, “particularly the potential escalation of regional conflicts like those in the Middle East. The impact could be most severe for the countries directly involved, but they may also indirectly affect global energy costs and shipping routes,” she added.
Beginning late last year, attacks by Yemen’s Houthi rebels on commercial shipments in the Red Sea and the Gulf of Aden, which are responsible for about 15% of global trade, encouraged many ships to reroute around the southern tip of Africa, adding one or more weeks to the journey.
Earlier in 2023, global shipping traffic was also reshuffled after a drought limited the number of ships that could pass through the Panama Canal. Shipping costs have risen amid these disruptions, though they are still significantly below the highs seen during the pandemic.
And in March 2021, a container ship ran aground in the Suez Canal, blocking traffic there for six days.
The estimates by the Center for Strategic and International Studies suggest that the Taiwan Strait hosts an even larger percentage of global trade than any of these channels. Matthew P. Funaiole, a fellow with the China Power Project at the Center for Strategic and International Studies who worked on the Taiwan Strait study, said tensions in the region were “a global issue.”
Any incident around Taiwan, such as an invasion or blockade, “would fundamentally disrupt the regular state of trade, and that would have a lot of economic consequences for a variety of countries,” he said.
By correlating global ship traffic with country-level trade data, the researchers provide what they say are the first academically rigorous estimates of the volume of trade through the Taiwan Strait. Other than Taiwan itself, they find that the economy most exposed to disruptions in the strait is China, which sends $1.3 trillion of trade through the channel annually. The bulk of these shipments are Chinese imports of petroleum, metals, iron ore and other raw materials, as well as electronic components, that will feed Chinese power plants and factories.
The researchers calculated that the strait was a conduit for nearly a third of Japanese and Korean imports, and about a quarter of their exports. Nearly 27% of Australia’s exports also pass through the strait, largely commodities like iron ore, coal and liquefied natural gas.
Of the five countries that are most dependent on the Taiwan Strait for their trade traffic, four are in Africa. Congo alone sends about 70% of its total exports, primarily copper, cobalt and other metals, through the strait. Many Middle Eastern countries also send more than 30% of their exports through the strait, as they provide the fuel that powers China.
“We have all of a sudden become very alert to the fact that trade flows are complicated but they narrow in these strategic choke points,” Funaiole said.
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