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Business News/ News / World/  GDP impact of South China Sea disputes

GDP impact of South China Sea disputes

Major Asia-Pacific economies could lose up to 12% of their GDP if the geopolitical tensions were to force closure of key trade routes in the region, finds a study

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The South China Sea, increasingly a hotspot of conflict between China and the US, is the subject of several overlapping territorial disputes. Like in most geopolitical tensions, trade would be a prime casualty in case of an escalation. And, as a new study finds, the consequences could be severe.

Major trading economies in the Asia-Pacific region could suffer an average GDP loss of over 12% if an escalation blocks shipping via key waterways in the region, finds the study by Kerem Coşar and Benjamin Thomas of the University of Virginia. The study was published as a working paper by the US National Bureau of Economic Research.

In this analysis, the authors assume a complete closure of the South China Sea and the various straits of Indonesia, forcing ships to take the south Australia route. Small, trade-dependent economies in and around the South China Sea, such as Taiwan, Singapore and Hong Kong, are likely to be the hardest hit.

India, Pakistan and China are likely to be the least affected.

It is not unfathomable to imagine a crisis that closes the South China Sea. The region is fraught with geopolitical tensions, including a dispute between China and Japan over the Senkaku Islands and overlapping claims involving China, Vietnam, the Philippines and Malaysia.

The authors also find a link between economic impact and military spending. Countries with a higher projected welfare loss are also the ones that spend more on defence as a share of GDP. To explore the link, the paper uses 2011-18 military expenditure data from a database maintained by the Stockholm International Peace Research Institute (SIPRI).

This suggests that countries that stand to lose the most economically from a potential conflict in the region are spending more on defence and security, conclude the authors.

Also read: The geopolitics of international trade in Southeast Asia

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Published: 24 Nov 2020, 09:30 AM IST
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