China’s military action in major shipping route threatens global supply chain

Since Covid, businesses dependent on a smooth running global supply
chain have learned the domino effect that a crisis can have. The recent
tensions between China and Taiwan are the latest. The air and seas
around the self-ruled island are crucial for smooth economic trade,
including for the Philippines and others in the ASEAN union.

What’s at stake?

Chinese military exercises around Taiwan sparked by US Speaker Nancy Pelosi’s
contentious trip there, which angered China, could disrupt the global supply chain.
With tensions mounting, the Philippines government called for restraint by all parties,
and that diplomacy and dialogue prevail. However, the Philippines’ Foreign Affairs
Department (DFA) said it is worried about – and closely monitoring the escalating
tensions in the Taiwan Strait, which is just north of Taiwan. Both PH and Taiwan are
on the world’s busiest shipping routes. As such, any disruption to the global supply
chain, already battered by COVID and Russia’s Ukraine invasion, will have a far-
reaching economic impact.

The impact is significant to the eCommerce market. The zone supplies much of the
world’s computer chips, semiconductors, and electronic equipment – from phones to
games consoles and laptops produced in East Asian factories. According to
TrendForce market research, just the Taiwan Semiconductor Manufacturing
Company (TSMC) has over half of the world’s market share. Also, the shipping
routes are a pathway for natural gas.

Political impact

Pelosi, the highest-ranking official to visit Taiwan in 25 years, maintains that Taiwan
was part of a wider visit to the Indo-Pacific region. The focus was on economic
partnership, democratic governance, and mutual security.

Despite the geographic importance of Taiwan and the Philippines, they also lie in the
theoretical “first island chain,” which comprises US-friendly regions crucial to US
foreign policy. The issue is that Thailand sees itself as separate from China and has
democratically elected leaders and a constitution. However, China views Taiwan as
a breakaway province that must be under Beijing’s control in keeping with its One-
China policy. China’s insistence on reunification and recent military drills show that it
has not ruled out force to achieve its goals. Despite its concern, the Philippines
released a statement reiterating that it conforms to the One-China policy and that the
only Chinese government is the People’s Republic of China.

Will the Philippines continue to stay neutral? Many political analysts doubt it. The
country’s geographic proximity, direct exposure to the dispute, and shared interests
by parties will prove passivity difficult.

Anna Rosario Malindog-Uy, from the Philippine-BRICS Strategic Studies, says the
PH should not get involved. Unless attacked first, China’s military principles won’t

allow it to attack the Philippines or any country. She also cautioned that since PH
has no enemies, it should not create one. Therefore, the country does not have to
defend itself from anyone or choose sides. Instead, relations with every country must
be based on national interests and not for the benefit of other countries at the
Philippines’ expense.

Nevertheless, Manila’s strategic choices will matter to Washington and Beijing. Also,
the Philippines appreciates that it would be disastrous for its South China Sea
interests if China gained control of Taiwan. Moreover, the PH is among the most
prosperous in the Association of Southeast Asian Nations (ASEAN) union. Taiwan
even prioritized PH as the gateway to ASEAN countries, and its New Southbound
Policy (NSP) of 2016 aimed to reinforce cooperation with PH in numerous fields,
including trade and investment and SMBs.

Despite its provocation, China’s economic problems continue, and a disruption to
trade would hurt the country. So it is a matter of how much economic and political
risk China’s leadership is ready to take.