Australian economy would take ‘economic hit’ in South China Sea war.
The economic fallout from military conflict in the South China Sea would hit every major economy in the Asia Pacific, including Australia, according to a new report.
One third of global shipping – worth $4.8 trillion of international trade – passes through the waterway, which links Asia with Europe and Africa.
But any disruption would result in global shipping being rerouted around the south of Australia at huge extra cost, the study by the US National Bureau of Economic Research said.
China along with the Philippines, Vietnam, China, Brunei, Taiwan and Malaysia hold different, sometimes overlapping, territorial claims over the waterway.
China claims more than 80 per cent of territory stretching up to 2000km from the Chinese mainland to Indonesia and Malaysia.
Since 2014, Beijing has built artificial islands on reclaimed reefs in the waterway and installed military bases on them.
The US and its allies, including Australia, have condemned the military build-up of the valuable trade route.
The study is modelled on the closures of the Malacca Strait between Malaysia and Indonesia and the east–west passage between the Pacific and Indian Oceans through the South China Sea.
Researchers said it would not be practicable to reroute shipping through the Torres Strait to the north of Australia because coral reefs and shallow waters make it hazardous for large container ships.
A total trade freeze would impact the Australian economy, with a projected decline of between 1.9 per cent and 3.1 per cent.
South Korea and Japan would experience similar falls.
But the economies of other nations that are reliant on international trade and lack huge domestic spending would suffer far worse.
Taiwan’s economy would shrink by a third, while Singapore’s economy would fall by 22 per cent.
The Philippines, Malaysia, and Taiwan’s economy would contract by a third, while Singapore’s economy would fall by 22 per cent, according to the baseline estimate.
Hong Kong, Vietnam, the Philippines and Malaysia would experience falls of between 10 per cent and 15 per cent.
But China’s economy would only face a 0.7 per cent decline because it has massive domestic markets and ports outside the projected conflict region.
The study authors stressed they only looked at the impact of increased shipping costs.
There could be a much larger impact for national economies with any disruption of essential goods and services, such as energy imports.
It also did not consider the wider effects of trade embargoes and shipping blockades during a conflict.
Australia, for example, would not be able to ship iron ore and other natural resources to China even if the longer trade route to its northern ports were open.
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