BusinessTrade Wars: Economic Hegemony in the South China Sea

The Sino-US trade war looms glaringly over the American economy, threatening small businesses and forcing consideration of radical economic reform.  Most pervasively, China’s emerging economic hegemony threatens areas of prominent American investment, like the regional hotspot of Southeast Asia, the South China Sea.  China has aggressively pursued an aggressive claim on the South China Sea which the international Hague Convention has deemed illegal, but Chinese claims still continue to the helplessness of regional neighbors The...
Sean CaiSeptember 10, 2018

The Sino-US trade war looms glaringly over the American economy, threatening small businesses and forcing consideration of radical economic reform.  Most pervasively, China’s emerging economic hegemony threatens areas of prominent American investment, like the regional hotspot of Southeast Asia, the South China Sea.  China has aggressively pursued an aggressive claim on the South China Sea which the international Hague Convention has deemed illegal, but Chinese claims still continue to the helplessness of regional neighbors

The US in the South China Sea

Despite being more than eight-thousand miles away from the highly contested zone, the South China Sea is vital for key American trading partners.  Six out of the US’s 10 top trading partners are within the South China Sea and more than 30% of US exports come from trade routes through the zone.  Top Asian companies like Hyundai will especially suffer given continued geopolitical escalation.

The Top 15 US Import and Export Countries in 2016
The Top US Import and Export Partners

The Trump Administration is especially seeking to diminish Chinese hegemony in the area with “Free and Open Indo-Pacific” (FOIP), a new geopolitical paradigm seeking to empower an alliance of democratically aligned countries in the region economically.  The Association of Southeast Asian Nations (ASEAN) on the other hand has drafted a “Single Draft COC Negotiating Text”, which will serve as the basis for the conduct of claimant parties in the South China Sea.  Overall, there are many codes of law that could govern this area ranging from the United Nations Convention on the Law of the Sea (UNCLOS) to the ASEAN Treaty of Amity and Cooperation (TAC).

The World Trade

A third of the world’s trade ($3.4 trillion) passes through the South China Sea every year.  Even more pressing is the fact that immensely rich natural resource reserves are in the contested waters.  The U.S. Energy Information Agency estimates that the area holds 190 trillion cubic feet of natural gas and 11 billion barrels of oil in reserves.  Quite a number of energy exploration companies from many nations operate in this zone, and Chinese claims on the area, if true, would monopolize these reserves for China only.

Under the current laws of UNCLOS and previous agreements, exclusive economic zones belonging to different countries exist in the South China Sea.  Under complete dominance of China, US companies like ExxonMobil will be locked out of contracts that they would have otherwise had if their host countries still had access to the South China Sea.  US foreign investment and oil and gas companies will decline as a result of this territorial spat.

South China Sea conflicting maritime claims over natural resources
Conflicting Claims by Southeast Asian nations to the South China Sea

Underwater natural resources are heavily contested zones for economic exploitation.  Shifting environments like melting Arctic ice produces an abundance of new natural resources while washing away old territorial claims.  In the South China Sea, the growing economic hegemony of China poses a massive threat to American oil and gas companies, as freedoms of the navigation of sea are threatened, and more and more American foreign investors and companies lose markets to geopolitical conflicts.

Sean Cai

Hey, I'm an up and going young economist very much interested in the realm of business. I've co-lead a few studies on economic principles and will be in the process of establishing my own LLC. Moreover, world economics and geopolitics are my main subject of attention.

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