The Taiwan Strait is one of the world’s busiest waterways and the main passage for cargo moving between Southeast Asia and Japan, South Korea and Northern China. The strait, while approximately 200 miles wide, is only navigable by modern ships through a stretch of some 15 miles. China claims it has sovereignty and jurisdiction over the strait, while Taiwan, the US and other countries consider the strait to be international waters.
Recently, China sent patrol boats to the Taiwan Strait where Chinese authorities have said the vessels might conduct inspections of ships in transit. While no inspections have occurred, should this change, inspections could, in effect, become, a blockade of this important marine artery.
We have previously discussed the importance of maintaining freedom of the seas and sea power. See blogs of May 13, 2013, “Freedom of the Seas“, and September 22, 2021, “Sea Power“.
Investors should be aware of the potential for increases in costs and disruptions in the supply chain if navigation through critical arteries, such as Taiwan Strait and Malacca Strait are disrupted. However, the potential for disruption may exceed the actual event. On the positive side, even though China may want to reinforce its views relating to territorial waters, its economy is dependent on international trade.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
