The nine-dash line threatens trade between Japan and South Korea

The following commentary is from Kevin Klowden, chief global strategist at the Milken Institute.

News from the weekend’s Group of Seven meetings focused on Ukraine, but China’s growing global presence was the other big topic on the G7 agenda. The implications of this rise are particularly important for East Asia’s two largest economies.

China wants to become a major military and political power in East Asia. Nowhere is this more evident than in President Xi Jinping’s “nine-dash line” declaration, in which Beijing claims sovereignty over almost the entire South China Sea. And of all the countries that have reason to be concerned about this claim, none except perhaps Japan and South Korea are on the line.

Much of the world is focused on the resource and military implications of China’s claims to islands in the region and Beijing’s development of what is becoming the world’s largest navy. For Japan and South Korea, the threat to their supply chains and energy imports is a more real and pressing issue.

In particular, Japan and South Korea are concerned about the Chinese declaration, which refers not only to the right to inspect cargo, but also to 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 maritime power. However, they have a strong economic stake in moving energy imports and manufacturing components without fear of restrictions. Even in non-war situations, China has maintained that the South China Sea is controlled territory, not open international waters under Chinese protection.

China has so far not been aggressive with 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 stop ships directly — it can simply track specific cargoes electronically or conduct inspections or diversions. Such actions will increase unpredictability and significantly increased costs.

For Japan and South Korea, the role of the United States in the post-World War II era was less disruptive, not only because of their alliance, but more importantly because the United States acted as a guarantor of free trade. movement in the hallway.

Outside of Japan or South Korea, few people notice or understand how important the South China Sea is when it comes to regional and even global energy supplies. Importantly, the sea carries an estimated 30% of the world’s crude oil, which supplies China and is vital to the energy-dependent economies of South Korea and Japan.

For Japan, the Tohoku earthquake in 2011 and the Fukushima nuclear accident further reinforced this dependence. As a result, limiting Japan’s nuclear program has made the country dependent on energy imports, with 98% of Japan’s oil coming from the Middle East.

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

The South China Sea is more than just energy. It also serves as a major transit route for the global supply chains of Japan and South Korea. Estimates suggest that the sea carries between 20% and 33% of global trade; For Japan, this figure reaches 40%.

As global supply chains regionalize, the role of the South China Sea in the economies of Japan and South Korea will only increase. Linking the two countries with trading partners in Southeast Asia, India and beyond will increase rather than decrease in importance.

Japan and South Korea have been able to rely on the stability of the South China Sea as a channel to drive their economic growth, even as the global political landscape has changed over the decades. Significant changes, including the Vietnam War and the end of the Cold War, did not stop maritime trade from becoming increasingly important.

As the United States balances its commitments in Europe, Asia and elsewhere, East Asia’s three most powerful economies — including China — all have an interest in stabilizing trade, supply chains and energy flows.

For South Korea and Japan, trade in the South China Sea remains stable for now. But as China increasingly seeks to assert itself and change the status quo in its favor, it is important for both countries to ask themselves: How much are they willing and able to make concessions to China in the region? And are they ready for alternatives that will allow them to compete economically?

Knowing the answers to these questions and preparing for a more Chinese-dominated future in the South China Sea is important for all three countries – even if the status quo remains in place for now.