Global trade at risk as tensions escalate in South China Sea

Some of the world’s busiest shipping lanes are at risk due to escalating tensions in the South China Sea, experts warn. 

In recent months, skirmishes have escalated in the highly-contested South China Sea – a marginal sea in the Western Pacific ocean that’s a crucial trade route for China, Japan and India, three of the world’s biggest economies. 

With Beijing claiming virtually all of the sea and a handful of other countries having overlapping claims, a number of clashes have broken out between China, the Philippines and Vietnam that have sparked concerns of an incident that could disrupt global trade.

These developments in the South China Sea should be on the radar of global markets and supply chains due to the importance of these waterways to international trade, according to Marko Papic, chief global geo-macro strategist at BCA Research.

“The South China Sea is the most valuable shipping lane in the world in terms of the value of trade that transits through it,” Papic told CNBC, noting that conflict there poses obvious risks to global shipping. 

Papic added that the seaway is particularly essential for commodity and input goods that travel through it to reach China, with Chinese manufactured goods then traveling via the route to other parts of the world.

Conflicts in the region have progressively grabbed the attention of governments worldwide including the U.S., which is locked in a mutual defense treaty with the Philippines.

CNBC was unable to track down data on the exact scale of trade traveling through the South China Sea. However, the CSIS China Power Project estimates that $3.4 trillion in trade passed through the South China Sea in 2016, constituting 21% of global trade. 

Meanwhile, the United Nations Conference on Trade and Development estimates that 60% of maritime trade passes through Asia, with the South China Sea carrying an estimated one-third of global shipping that year. 

However, China, in particular, claims almost all of the South China Sea as its own under its “nine-dash-line,” which rejects a 2016 ruling by an international arbitration court in The Hague, Netherlands, that found no legal or historical basis for Beijing’s claims. 

This has led to escalating friction with many of China’s neighbors who believe that the country’s coast guard has intruded into their exclusive economic zones. 

Earlier this month, the Philippines accused Chinese missile boats of pursuing Philippine vessels and directing lasers at patrolling…