Nine-dash line threatens Japan, South Korea trade

The following comments come from Kevin Klowden, chief global strategist at the Milken Institute.

News coverage of the G7 meeting over the weekend was largely focused on Ukraine, but China’s rising global influence was another big topic on the G7’s agenda. The impact of this growth is especially important for East Asia’s two largest economies.

China wants to become a military and political power in East Asia. Nowhere is this more evident than in President Xi Jinping’s “nine-paragraph” statement, through which Beijing asserts sovereignty over nearly the entire South China Sea. Of all the countries that have reason to worry about this claim, perhaps none are more dangerous than Japan and South Korea.

Much of the world is focused on the resources and military influence of China’s claim to the islands in the region, and Beijing’s growing navy to become the world’s largest. For Japan and South Korea, the threat to their supply chains and energy imports is a more real and present concern.

Japan and South Korea are particularly concerned about China’s statements, which invoke not only the right to inspect goods but also the ability to restrict traffic. Neither Japan nor South Korea have any political interest in ownership of the Spratly Islands or in China replacing the United States as the dominant naval power. However, they have a strong economic interest in shifting energy imports and manufacturing components without fear of restrictions. Even in non-wartime situations, China regards the South China Sea as controlled territory, not a high sea under Chinese guardianship.

To date, China has not taken aggressive action against maritime shipping, but the potential for action poses a clear threat to the economies of Japan and South Korea. China doesn’t even have to intercept ships directly — it can simply track specific cargo electronically, or conduct inspections or divert them. Such actions raise concerns of unpredictability and significant cost increases.

For Japan and South Korea, the role of the United States after World War II was much less damaging, not only because they were allied, but more importantly, because the United States acted as a guarantor of free trade and protected Japan and Japan. South Korea. Movement through corridors.

Few outside Japan or South Korea pay attention to or understand the importance of the South China Sea in terms of regional or even global energy supplies. Notably, the sea carries an estimated 30 percent of the world’s crude oil, supplies China, and provides a vital lifeline to energy-dependent economies of South Korea and Japan.

For Japan, the 2011 Tohoku earthquake and subsequent Fukushima nuclear accident only exacerbated this dependence. The scaling back of Japan’s nuclear program has left the country dependent on energy imports, with 98 percent of Japan’s oil coming from the Middle East.

In many ways, South Korea is more dependent on energy imports than Japan, making oil and gas imports particularly important.

The importance of the South China Sea goes beyond energy. It is also an important channel for the global supply chain of Japan and South Korea. It is estimated that the oceans carry between 20% and 33% of global trade; for Japan, the figure is as high as 40%.

The role of the South China Sea in the economies of Japan and South Korea will only grow as global supply chains regionalize. The importance of linking the two countries with trading partners in Southeast Asia, India and beyond will increase, not decrease.

Japan and South Korea have been able to rely on stability in the South China Sea as a conduit to drive economic growth even as the global political landscape has changed over the past few decades. Major shifts, including the Vietnam War and the end of the Cold War, have not stopped maritime trade from growing in importance.

East Asia’s three most powerful economies — including China — have a vested interest in ensuring the stability of trade, supply chains and energy flows as the U.S. balances commitments in Europe, Asia and elsewhere.

For South Korea and Japan, trade in the South China Sea remains steady for now. But as China increasingly looks to assert its interests and change the status quo, both countries must ask themselves: How much are they willing and able to concede in the region before it becomes unsustainable? Are they ready for alternatives that will allow them to compete economically?

Knowing the answers to these questions and preparing for a future dominated by China in the South China Sea is important for all three countries — even if the current status quo remains the case.