Crossroads Of Commerce

Maritime trade is the lifeblood of the global economy.

Each year, thousands of massive containerships and tankers ferry more than $11.5 trillion in goods and energy across the world’s oceans.

These vessels follow well-established routes that converge at strategic chokepoints where maritime traffic is especially vulnerable to disruption.

Asia’s geography, and its centrality to global commerce, have heightened the importance of chokepoints like the Strait of Malacca and, increasingly, the Taiwan Strait.

China’s rising assertiveness has sparked fears that it may soon use force to bring Taiwan under its control.

While a major conflict over Taiwan would have catastrophic consequences for the global economy, less severe actions taken by Beijing would also destabilize trade through the Taiwan Strait.

New research from CSIS estimates that approximately $2.45 trillion worth of goods — over one-fifth of global maritime trade — transited the Taiwan Strait in 2022.

Disruptions to this trade would send shockwaves well beyond Taiwan and China, impacting key U.S. allies and broad swaths of the Global South.

Chinese leader Xi Jinping has made it unequivocally clear that the use of force remains an option for resolving Taiwan’s ambiguous political status, stoking fears about a possible invasion of the island.

But Beijing has a range of options short of invasion at its disposal. CSIS research suggests that less kinetic actions, such as a coast guard–led quarantine of Taiwan, are more likely in the short term than an amphibious assault on the island.

While lower in intensity, such contingencies could still threaten the trillions of dollars’ worth of trade that moves through the Taiwan Strait each year.

▲ Reliance on the Taiwan Strait for Trade

Taiwan produces over 90 percent of the most cutting-edge chips used in smartphones, data centers, and advanced military equipment. Disruptions to the supply of these technologies could wipe trillions of dollars from global GDP.

It is a critical hub for other goods as well. CSIS estimates that Taiwan’s ports handled approximately $586 billion worth of trade in 2022, including transshipments between other economies. Yet nearly all of this activity flowed through a handful of ports located as little as 100 miles from the Chinese mainland — leaving them uniquely vulnerable to Chinese provocations.

Any possible disruption of merchant traffic through the Taiwan Strait may prompt shipping companies to avoid the area to limit risks and avoid the increased costs from spikes in insurance premiums. Many shippers have done just that throughout 2024 to avoid Houthi attacks in the Red Sea.

Merchant vessels typically travel well-worn routes that make the most economical sense, so forced deviations come at a cost.

For example, a container ship carrying goods from Singapore — the second-busiest port in the world — to South Korea’s top port, Busan, would typically route through the South China Sea and the Taiwan Strait, with stops in Taiwan or China.

If traffic through the Taiwan Strait is disrupted, the same container ship could reroute through the Luzon Strait and sail east of Taiwan. This would not add much distance to the overall route, but it would likely necessitate skipping port calls in China.

If cross-strait tensions become especially dire, cautious shipping companies may avoid routes near Taiwan altogether.

That same vessel departing from Singapore may choose to sail south of the Philippines before heading north through the Miyako Strait to reach South Korea. This would extend the journey by roughly 1,000 miles, adding significant costs and delays.

It would also likely make it infeasible to stop at Chinese ports while en route to Busan, which could have significant ripple effects on supply chains given China’s central role in maritime shipping.

While charting new routes is possible, shipping companies will face significant logistical challenges in implementing these changes, leading to cost increases and delays that will ultimately affect consumers.

Powering Japan and South Korea

Many countries would feel the effects of these disruptions, but two key U.S. allies, Japan and South Korea, would be among those most impacted. CSIS estimates that 32 percent of Japan’s imports and 25 percent of its exports — totaling nearly $444 billion — transited the strait in 2022.

South Korea depended on the Taiwan Strait for 30 percent of its imports and 23 percent of its exports, amounting to about $357 billion in goods.

▲ Reliance on the Taiwan Strait: Japan and South Korea

For both allies, their reliance on the Taiwan Strait is crucial for importing raw materials. Each year, tankers and other ships carry vast amounts of oil, gas, and coal through the strait to Japan and South Korea to meet their immense energy needs.

Over 95 percent of Japan’s crude oil and 65 percent of South Korea’s is sourced from a select group of Middle Eastern countries. Since ships typically follow the shortest paths available, much of this trade passes through the Taiwan Strait.

For Japan, CSIS estimates that roughly $13 billion of its imports also pass through the Luzon Strait — a trip that makes sense for some ships bound for the country’s eastern ports. Yet this is just a fraction of its imports through the Taiwan Strait.

We reaffirm that maintaining peace and stability across the Taiwan Strait is indispensable to international security and prosperity.

— G7 Leaders’ Communique, June 2024

Japan and South Korea are also major players in high-tech supply chains and are heavily reliant on the Taiwan Strait for shipments of electronics and machinery.

Chips and electronics rank as South Korea’s second-largest import and Japan’s fourth-largest by value. The lion’s share of these chips are imported from Taiwan and China, including fabrication plants located along the Taiwan Strait in western Taiwan and southeast China.

Elsewhere in the Indo-Pacific

For another key U.S. ally, Australia, these dynamics are almost completely flipped. The continent is endowed with immense natural resources, which Canberra has leveraged to position Australia as a pivotal player in the global economy.

Nearly 27 percent of Australia’s exports passed through the Taiwan Strait in 2022, totaling almost $109 billion. Commodities such as iron ore, coal, and liquefied natural gas comprised approximately 83 percent of this trade.

▲ Global Reliance on the Taiwan Strait: Australia

China has an especially voracious appetite for Australian iron ore. One in every six dollars Australia earns from its global exports comes from selling iron ore to China. Much of this must pass through the Taiwan Strait to reach China’s heavily industrialized northern provinces, where roughly three-quarters of China’s steel production occurs.

These exports are heavily geographically concentrated in northern Australia. Roughly 85 percent of ore carriers sailing from Australia through the Taiwan Strait to China depart from just one location, Port Hedland, which is one of the world’s largest iron ore export hubs.

Crucially, though, the extent of the pain for Australia would likely depend on the extent of Chinese aggression. During a quarantine or blockade, Australia may continue selling iron ore and other goods to China while absorbing some of the costs from rerouting away from the waters around Taiwan. In a wide-scale war over Taiwan, the issue may be moot as Canberra could withhold exports of iron ore and other goods to China in response.

Other key actors in the region are less reliant on the Taiwan Strait. The Philippines depends on the strait to transport about one-fifth of its global imports and one-seventh of its exports, but its geography allows it to send much of its trade through the Luzon Strait and Western Pacific Ocean.

Similarly, mainland Southeast Asian countries like Vietnam, Thailand, Laos, and Myanmar are less dependent on the Taiwan Strait — in part because they can send a sizeable portion of their trade overland.

A Critical Route for the Global South

The Taiwan Strait’s importance is not limited to Indo-Pacific countries. The four countries most reliant on the strait are in Africa.

These countries all have one thing in common: their economies depend heavily on exporting raw materials to Asia, especially China.

The Democratic Republic of the Congo shipped nearly $13 billion worth of copper, cobalt, and other metals through the strait — about 62 percent of its total global exports. Nearly all of it was bound for China.

▲ Global Reliance on the Taiwan Strait: Africa and the Middle East

Eritrea likewise exports more than 70 percent of its zinc ore and almost 100 percent of its copper ore to China. Gabon and Angola are endowed with oil, about 40 percent of which is bound for China. Much of this trade makes its way through the Taiwan Strait to ports in northern China.

Countries in the Middle East are similarly reliant on the strait for transporting oil to markets in Asia. Oman, Saudi Arabia, Iraq, Kuwait, Qatar, and Yemen all send over 30 percent of their exports through the strait.

These dynamics also extend to some of China’s largest and most important economic and geopolitical partners. On average, the nine BRICS economies rely on the Taiwan Strait for about 14 percent of their imports and 15 percent of their exports. That is more than twice the level of dependence of the G7 economies.

▲ Reliance on the Taiwan Strait: BRICS vs. G7

China has sought to position itself as a leader and voice of developing countries, in part to build support for its alternative vision of international order beyond the “Western approach.” This is especially the case for its engagement with BRICS nations.

The need to maintain broad-based diplomatic support to advance this vision may make Beijing more sensitive to the concerns of these nations. In a crisis or conflict over Taiwan, developing countries will likely seek to continue trading with China — as many have continued to do business with Russia following its 2022 invasion of Ukraine. Faced with severe disruptions to their trade, they could collectively exert significant pressure on Beijing to resolve a conflict to avoid long-term economic pain.

China’s Reliance on the Taiwan Strait

China’s own economy stands to be severely impacted by any disruptions to trade through the Taiwan Strait.

In a large-scale conflict over Taiwan — such as a blockade or invasion — China would likely face severe economic consequences from financial market shocks, U.S. and allied sanctions, and other ripple effects. In addition to those imposed costs, the consequences of interrupted trade flows would be significant.

A staggering $1.3 trillion of Chinese imports and exports passed through the Taiwan Strait — far more than any other country. Hong Kong adds another $95 billion in trade, bringing the total to nearly $1.4 trillion.

▲ Value of Trade through the Taiwan Strait

The waterway is especially crucial in supplying China with raw materials. China’s rapid economic development has transformed the country into the largest importer of oil, coal, and natural gas, as well as key manufacturing imports like ores and metals.

These goods collectively make up two-thirds of the value of goods headed to China through the strait.

▲ Chinese Trade through the Taiwan Strait by Industry

China’s reliance on the strait for exports is lower by comparison, with only 15 percent of its exports passing through the waterway. This is largely because many exports do not have to transit the strait to reach China’s key export markets, such as the United States, Japan, and South Korea. Despite this lower dependency, the total value of exports transiting the strait still exceeds $551 billion — an enormous sum to put at risk.

Crucially, the strait is not simply vital for China’s international trade. It also facilitates the flow of goods within China. Over half of all voyages through the Taiwan Strait are between the sprawling ports dotting China’s eastern seaboard. China could move some goods internally by land or air, but doing so is typically far more expensive than transporting them by sea. Policymakers in Beijing are undoubtedly aware of this reality, which likely plays a role in their decisionmaking regarding the use of force against Taiwan.

In a crisis or conflict that disrupts maritime traffic through the Taiwan Strait, China would face major obstacles to conducting trade. Yet Beijing does have options to mitigate the challenges.

▲ China’s Top Container Ports

If the Taiwan Strait is completely impassable to merchant ships, vessels bound for China could reroute, but if they are forced to go through the Miyako Strait, this could leave China susceptible to a distant blockade by U.S., Japanese, and other forces seeking to deprive China of trade.

In less kinetic scenarios, China could also attempt to only close the Taiwan Strait to non-Chinese vessels while allowing or demanding that its ships continue sailing through the Strait. Nearly half of all cargo and tanker vessels transiting through the Taiwan Strait each year are Chinese-flagged. Nevertheless, there is no guarantee that Chinese-owned ships would be secure from interdiction by forces opposing China.

Looking Ahead

Beijing forcefully asserts that the issue of Taiwan is “purely an internal affair,” and its officials bristle when other countries sail naval vessels through the Taiwan Strait — despite their rights to freedom of navigation under international law.

Yet this report shows the immense importance of the Taiwan Strait to international commerce and demonstrates the scale of the economic consequences should Beijing upset the fragile stability in the strait by using force against Taiwan.

Ensuring free and open maritime trade through the Taiwan Strait is critical not just for nearby nations like China, South Korea, and Japan, but for the entire global economy. For Washington, working closely with allies and partners to maintain cross-strait stability is essential to safeguarding international trade.

Matthew P. Funaiole is vice president of the iDeas Lab, Andreas C. Dracopoulos Chair in Innovation, and senior fellow of the China Power Project at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Brian Hart is a fellow with the China Power Project at CSIS.

David Peng is a senior fellow for data science with the iDeas Lab at CSIS. He has over 15 years of experience in quantitative research.

Bonny Lin is a senior fellow for Asian security and director of the China Power Project at CSIS.

Jasper Verschuur.