The global trade supply chain is again at the mercy of geopolitical tensions.
With the Russia-Ukraine war wreaking havoc on commodities trading and raising oil and wheat prices to unprecedented levels, consumers may experience further supply disruption amid China’s military exercises around Taiwan.
China is conducting the military drills near the Taiwan Strait, one of the busiest shipping routes on earth, in response to the visit of US House Speaker Nancy Pelosi to Taiwan – which Beijing considers a renegade island,.
Cargo ships pass through this sea lane to deliver key semiconductors and electronic equipment to global markets. Such electronic parts and components are manufactured from factories in this part of the world.
Rerouting the shipments of goods and commodities from the major sea lane to alternative passages will increase transportation cost and extend the delivery time for raw materials. Almost half of the world’s container ships, according to a Bloomberg estimate, passed through the narrow Taiwan Strait that separates the island from the Chinese mainland in the first seven months of this year.
A sea blockade by China will make matters worse. The critical sea lane is often used by Japan and South Korea and the rest of Southeast Asian nations in shipping out goods and commodities.
Air travel may also suffer from China’s military drills.
Over 400 flights have already been canceled at the major airports of Fujian province, the closes to Taiwan. Airlines from Southeast Asian nations using the airspace over Taiwan Strait may do the same as a precaution.
China will not likely escalate its saber-rattling in the region.
A blockade in the area will only hurt the world’s second-biggest economy that is still reeling from the damage of rigid COVID-19 rules.
But China’s show of force may have already hurt Taiwan’s economy.
It is a reminder that Taiwan is living on borrowed time and that its economic success in the future will hinge on a peaceful settlement with China.
Foreign investors in Taiwan, too, realize that the geopolitical conflict will drag economic growth in the island in the medium- and long-term periods.
They should start looking for more stable foreign investment sites in the region.