China’s Claim Over South China Sea Rejected, Increases Uncertainty For Southeast Asia Trade

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A ruling by an international tribunal against China’s claims over most of the South China Sea has created a new wave of uncertainty for shipping and international trade according to industry associations, reports Wall Street Journal.

Any disruption to ship-borne trade in the South China Sea could have a wide-ranging impact on global commerce, including energy supplies. Merchant ships should be allowed to go about their business on the world’s ocean without delays. China has been harsh and rhetorically rejected the ruling, but has committed to negotiations with Philippines. Vietnam, Malaysia, Taiwan and Brunei also have claims in the South China Sea.

Tuesday’s ruling could embolden smaller Asian countries to be more assertive regarding their rights in these waters, increasing run-ins with China and leading to possible disruptions of freedom of navigation.

Thousands of ships transit the waters daily, connecting markets and goods in East Asia with the Middle East and Europe.

Total annual trade through the South China Sea amounts to $5.3 trillion, with US trade accounting for $1.2 trillion.

A third of the world’s liquefied natural gas passes through the South China Sea, much of it bound for Japan and South Korea.

Tensions in the South China Sea have grown in recent years as China has built artificial islands on reefs and atolls it occupies, triggering alarm from smaller neighbors and hereby triggering the US to send warships throughout the area to assert freedom of navigation.

Given the current challenging state of the shipping/maritime industry globally, any increase in insurance will exacerbate an already difficult time for shipping companies. An escalation in tension is bad for Asia, because the region is very integrated, it would be negative for all countries that are linked to this tight web of trade and investment.

Concerns are now regarding whether China will take action to effect trade flows or shipping. Disputes over the South China Sea will impact commerce, including ecommerce supply chain in the region.

A version of this appeared in The Wall Street Journal on July 14. Read the full version here.