Could a South China Sea crisis disrupt U.S. freight?

Arleigh Burke -class guided-missile destroyer USS Mustin (DDG 89) leads ships from the Japan Maritime Self-Defense Force during bilateral exercises in the South China Sea.

A few weeks ago, Chinese President Xi Jinping stood in the Great Hall of the People in Beijing and delivered a marathon 3 hour, 23 minute address to the 19th Communist Party Congress lauding the achievements of his first term: Xi’s war on corruption, the One Belt One Road infrastructure initiative, and China’s new role as a global leader on climate issues. Xi also highlighted China’s push for regional dominance in the disputed areas of the South China Sea, an issue that has slipped from the headlines in recent months as the world turned its attention to North Korea, but is still unresolved and increasingly dangerous.

“Construction on islands and reefs in the South China Sea has seen steady progress,” Xi declared, referring to China’s controversial efforts to expand and militarize small atolls and islands in the midst of ongoing territorial disputes with Brunei, Indonesia, Malaysia, the Philippines, Taiwan, and Vietnam. The main cause of controversy is that the waters China claims jurisdiction over—or wants classified as ‘disputed territory’—are up to a thousand miles from Chinese shores, but just off the coast of countries like Vietnam and the Philippines. 

At stake for China and the other countries vying for control of the South China Sea are rich fisheries holding a third of the entire world’s marine biodiversity and estimated oil reserves holding 11B barrels. China has invited international censure by trying to lease tracts of the South China Sea claimed by other countries to oil companies for exploration and development. China has not attempted to define its exact territorial claims, betting that ambiguous and contradictory statements will work to Chinese advantage. 

One major clue to the ultimate goals of Chinese expansionists is the so-called “Nine-Dash Line”, an informal demarcation line first appearing on Chinese government maps in 1947 that marks off nearly all of the South China Sea. China has refused to file a specific legal claim to the area contained within the dashes, but when the Permanent Court of Arbitration at the Hague found in favor of the Philippines that China had no legal basis to claim ‘historic rights’ within the Nine-Dash Line in July 2016, the Chinese government rejected the ruling.

Despite the decision of international arbitration courts, China has continued to convert tiny, uninhabited islands into airbases and is expected to deploy combat jets to them in the near future. In response, the United States military has stepped up freedom of navigation patrols, or FONOPS, where US destroyers and warplanes pass closely by Chinese installations, insisting that they are in international, not national, waters. For example, in late May, the Arleigh Burke-class guided-missile destroyer USS Dewey sailed within 12 miles of the Chinese artificial island Mischief Reef, penetrating the zone that China claims as its sovereign territory.

“China appears to be pursuing a well-thought out and long-term strategy to achieve dominion over the South China Sea while America responds with ad hoc tactical maneuvers,” said Ian Storey, a South China Sea expert at Singapore’s Yusof Ishak Institute.

Why does freedom of navigation matter? Because even more important than the South China Sea’s own natural resources is access to its shipping lanes: 1/3 of the world’s shipping passes through the sea, representing a value of $5T annually. 10M barrels of crude oil pass through the crowded Strait of Malacca every day, where the Arleigh Burke-class destroyer USS John S. McCain and the tanker Alnic MC collided this past August. Chinese state-run media had a ready-made response to that accident: “U.S. warships patrol too frequently in the Asia-Pacific,” said an editorial in the Global Times newspaper. 

The chances of a crisis in the South China Sea that freezes shipping should not be exaggerated, but they should not be ignored, either. While the total shipping that passes annually through the South China Sea is valued at $5T, U.S.-only imports and exports make up $1.2T of that sum. If a shift in the regional balance of power coincided with open hostilities, the Straits of Malacca, the East China straits, and the straits of Sunda and Lumbok would all be adversely impacted. Prices for commodities like oil, copper, and iron ore would spike. A disruption would cost Japan and South Korea hundreds of millions of dollars to reroute their oil imports. American ports on the West Coast from Seattle and San Francisco down to Los Angeles and Long Beach would sit idle as inbound and outbound freight traffic shut down. 73% of the world’s electronics are manufactured in China and shipped through the South China Sea—that traffic would cease. 

Chinese and American officials have historically gone to great lengths to avoid escalations into armed conflict, and neither side would benefit from a major trade disruption in the South China Sea—such a scenario would likely only to come from an sudden, unexpected clash of arms. As the United States tries to influence and shape China’s rise, it has to avoid what diplomats and defense policy analysts call the Thucydides Trap, based on the ancient Greek historian’s theory of the Peloponnesian War: “it was the rise of Athens and the fear this instilled in Sparta that made war inevitable.” 

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John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.