As a continuation of our articles on trade geopolitics, this month we have decided to do a special article on the importance of Southeast Asia and especially the South China Sea and the Strait of Malacca. In order to highlight in a special way how geo-strategy and international trade today is centred on Southeast Asia
Demonstrating once again that as we always say: ‘THERE IS LIFE BEYOND TURKEY !!’
Southeast Asia: International Trade Hub
The South China Sea and the Strait of Malacca are two of the most strategic points in global trade geopolitics. The South China Sea, through which 60% of the world's maritime trade flows, is a vital route for the transport of energy and goods connecting key economies such as China, Japan and South Korea. It is also home to significant oil and gas reserves, making it a theatre of territorial tensions, especially between China and the United States.
Both routes are not only essential for international trade, but also key scenarios in the rivalry between China and the United States, where control of these sea lanes and influence over Taiwan, the technological heart of the world, define the future of commercial geopolitics.
Stability in these regions is essential to secure world trade, but rising tensions could upset the global balance we have enjoyed so far.
China's Dominance of World Trade
China is not only the world's largest exporter, with an average of $3.6 trillion in exports per year, but also directly or indirectly controls some of the world's most important ports. This network of strategic ports allows it to influence global trade routes and consolidate its position as a leader in international trade.
Top 15 Commercial Ports and their control by China
All these points underline both China's strategic importance in world trade and the key geostrategic position that the South China Sea and the Strait of Malacca play in the current functioning of world trade.
From the table above, we can draw the following conclusions:
- The 5 largest ports in the world are located in the waters of the South China Sea.
- In addition, 9 of the world's top 15 ports are concentrated in the waters of the South China Sea.
- China has direct or indirect control of 11 of the 15 most important ports in the world: 9 directly (through the Chinese government) and 2 indirectly (through Cosco Shipping).
- And, moreover, China directly controls 7 of the top 10 ports in the world.
The South China Sea: A Strategic Hub in Global Trade Geopolitics
The South China Sea, a vast expanse of sea connecting Northeast and Southeast Asia with the Indian Ocean and the rest of the world, has established itself as a focal point in global trade geopolitics. Its significance resides in its role as one of the world's busiest shipping lanes, carrying approximately 60% of global maritime trade, equivalent to more than $3.4 trillion in goods annually.
This maritime region acts as an essential bridge for international trade, facilitating the transport of raw materials, manufactured goods and energy resources. Major trade routes through the South China Sea connect key economies such as Japan, South Korea and China, which depend on maritime trade for their development.
On the other hand, the Strait of Malacca, a strategic sea lane and one of the most congested in the world, is located within the area of influence of the South China Sea, which significantly increases its importance. This strait acts as a critical gateway to the South China Sea, through which much of the world's trade, including oil from the Middle East transits.
A Landscape of Geopolitical Tensions
But the strategic importance of the South China Sea is not limited to trade, as the region is also rich in oil and natural gas reserves, making it a key energy security hotspot for many countries.
However, China's territorial claims based on the so-called ‘nine-dash line’ have generated significant geopolitical tensions with neighbouring countries such as Vietnam, the Philippines, Malaysia and especially Taiwan.
These tensions have also been exacerbated both by China's construction of artificial islands and militarisation of the area, and by US actions challenging territorial claims to the waters of the South China Sea and defending international maritime law.
In addition, the growing rivalry between the US and China is making the region a constant point of friction in global geopolitics.
A Tipping Point for World Trade
Talking in terms of trade, the high dependence of global maritime trade on the South China Sea underlines its importance for the world economy. Indeed, ports located in the South China Sea, and especially those controlled by China, play a key role in global trade by acting as distribution centres and hubs that facilitate the movement of goods.
The South China Sea has therefore established itself as a strategic hub in global trade geopolitics where the economic, energy and strategic interests of various countries converge. The management of tensions in this region is therefore crucial to guarantee the stability of international trade and global energy security.
The Strait of Malacca: A Strategic Bottleneck in Global Trade Geopolitics
The Strait of Malacca, a narrow waterway connecting the Indian Ocean with the South China Sea and the Pacific, stands as a crucial point for global maritime trade. Its importance lies in its ability to facilitate the flow of goods between Asia, Europe and the rest of the world, establishing itself as a vital artery for the transport of energy, manufactured goods and raw materials.
Approximately 805 kilometres long and only 2.5 kilometres wide at its narrowest point, the Strait of Malacca is a real ‘bottleneck’ for maritime trade. It is estimated that more than 100,000 ships pass through this strait each year, equivalent to an average of 250-300 ships/day. This heavy traffic includes oil tankers, container ships, bulk carriers and other types of merchant vessels, which carry approximately 25% of global maritime trade.
Key Trade Flows and Products
In this regard, the Strait's transit is particularly critical for the transport of energy, as around 80% of China's oil imports pass through the Strait, coming from the Middle East. In addition, a large amount of manufactured goods, containers, and raw materials such as minerals, coal and agricultural products flow through the Strait, consolidating its role as a central hub for world trade.
In fact, more than 50% of the annual tonnage of the world's merchant fleet passes through this sea and 33% of all maritime traffic. An example, in order to understand the importance of this sea passage, is that the oil transported through the Strait of Malacca from the Indian Ocean en route to East Asia via the South China Sea is more than 6 times the amount that passes through the Suez Canal and 17 times the amount that transits through the Panama Canal.
Thus, approximately 66% of South Korea's energy supplies, almost 60% of Japan's and Taiwan's energy supplies, and approximately 80% of China's crude oil imports pass through the Malacca Strait - South China Sea route.
Relevance for Asia and Europe
On the other hand, this transport route is also a key gateway for trade between Asia and Europe.
A large amount of goods destined for Europe from Asia transit through the Strait, underlining its importance for European economies that depend heavily on Asian imports. Indeed, for China the Strait is vital for its exports to the EU.
So, as we discussed in relation to the South China Sea, any disruption to this route would have a significant impact on the world economy and especially on Europe, which is heavily dependent on Asian imports.
Geopolitical implications
As noted above, the strategic location of the Straits of Malacca makes it a point of interest for major world countries.
Singapore, a strategic ally of the United States, hosts one of the world’s most important ports at the entrance to the Strait, adding a geopolitical dimension to its control. Indeed, the Strait of Malacca is vulnerable to risks such as piracy and terrorism.
In summary, the Strait of Malacca is a strategic point in global maritime trade with significant implications for the world economy and geopolitics.
Taiwan: The Technological Heart in the Sights of the Powers
As we have pointed out, the South China Sea is not only a vital trade hub, but also a key location of the US-China rivalry. Beyond territorial disputes and control of maritime routes, the region is home to a critical element: Taiwan, the epicenter of the global microchip industry.
Taiwan has established itself as an indispensable actor in the trade war between China and the US, especially in the microchip sector. The Taiwanese company TSMC, a world leader in semiconductor manufacturing, produces more than 50% of chips globally, and more than 90% of the most advanced chips. These components are the backbone of the technology and military industry, from smartphones and computers to advanced defense systems.
TSMC, representing more than 50% of the world’s advanced semiconductor production, dominates a global market exceeding $500 billion annually. The microchips manufactured in Taiwan are shipped worldwide via sea routes through the South China Sea and the Strait of Malacca; so as we have been commenting any blockage or disruption on these routes would seriously affect the global supply chain.
The sectors most affected include:
- Automotive industry: Modern cars depend on dozens, even hundreds, of microchips for functions such as engine control, driver assistance, infotainment systems and safety. Indeed, during the microchip shortage of 2020-2022, manufacturers such as Ford, General Motors and Volkswagen were forced to reduce production or even temporarily close plants due to lack of components. This resulted in delays in vehicle delivery and price increases.
- Consumer Electronics: Smartphones, computers, tablets, video game consoles, televisions and smart home appliances depend on microchips for their operation. In fact, the microchip shortage made it difficult to produce video game consoles such as the PlayStation 5 X, which led to shortages and price increases. Smartphone manufacturers, such as Apple and Samsung, also faced production delays and possible price increases.
- Military Industry: Modern defense systems, such as missiles, combat aircraft, drones and communication systems, rely on advanced microchips. In fact, the military sector is one of the most dependent on microchips of the latest generation. Thus, the lack of microchips could delay the production of weapons systems, affect the maintenance capacity of existing equipment and compromise national security.
- Critical Infrastructure: Telecommunications networks, data centres, industrial control systems, electrical networks and transport systems depend on microchips for their operation. So that the lack of these at any given time, could disrupt the operation of telecommunications networks, affect the availability of cloud services, paralyze production in factories and generate blackouts.
- Artificial intelligence: AI development and implementation rely on high-performance microchips, such as graphics processing units (GPUs) and neural processing units (NPUs); increasingly demanding more powerful microchips. So its lack of could delay the development of AI applications in areas such as medicine, robotics, autonomous driving and natural language processing.
In fact, as we have already seen and suffered, the COVID-19 pandemic has revealed the fragility of global supply chains, especially with regard to microchips. Production and transport disruptions, exacerbated by lockdowns and trade restrictions, led to a global semiconductor shortage. This had a significant impact on various industries, from automotive to consumer electronics, evidencing the global dependence on a limited number of suppliers.
In conclusion, both the South China Sea and the Strait of Malacca constitute a mosaic of strategic and technological interests where the rivalry between China and the US is manifesting with increasing intensity. Control of Taiwan and its microchip industry has become a key element in this competition, with significant implications for global security and economic stability. The COVID-19 pandemic has given us a glimpse of what could happen if the microchip supply chain is disrupted, and reminds us of the importance of protecting this vital industry.
Final Conclusion: China and its Geopolitical Strategy in World Trade
In an increasingly interconnected world marked by trade and geopolitical tensions, China has emerged as a central actor in international trade challenging the traditional leadership of powers such as the US and the EU. Through a well-articulated strategy combining control of key ports, expansion of its influence in the South China Sea and dominance of strategic trade routes such as the Strait of Malacca, China has consolidated its position as an emerging global power.
In an increasingly interconnected world marked by trade and geopolitical tensions, China has emerged as a central actor in international trade challenging the traditional leadership of powers such as the US and the EU. Through a well-articulated strategy combining control of key ports, expansion of its influence in the South China Sea and dominance of strategic trade routes such as the Strait of Malacca, China has consolidated its position as an emerging global power.
The Strait of Malacca, for its part, represents a critical bottleneck for global maritime trade, especially for the transport of oil and manufactured goods. Its importance for the Asian and European economies makes it a strategic point of interest for the major powers, including China and the United States. Any interruption on this route could have devastating consequences for the global economy, especially in a context of growing rivalry between these two powers.
Moreover, Taiwan, as the epicenter of the global microchip industry, adds an additional layer of complexity to this geopolitical dynamic. The global reliance on microchips manufactured in Taiwan, especially by companies like TSMC, makes the island a strategic target for both China and the United States. Disruption of the microchip supply chain, as seen during the COVID-19 pandemic, could have a profound impact on key industries such as automotive, consumer electronics, defense and artificial intelligence.
In summary, China’s geopolitical strategy in world trade, focused on port control, maritime routes and the technology industry reflects its ambition to become the leading global power. However, this ambition is not without challenges and risks, especially in a context of growing rivalry with the United States and tensions in key regions such as the South China Sea and Taiwan. Managing these tensions will be crucial to ensuring the stability of international trade and global energy security in the coming years.