Global trade at risk as tensions escalate in South China Sea

Escalating tensions in the South China Sea pose significant risks to global trade, particularly as this region includes some of the world’s busiest shipping lanes. Recent months have seen increased skirmishes in this contested area, an essential trade route for major economies like China, Japan, and India. Conflicts amongst China, the Philippines, and Vietnam over territorial claims threaten disruptions in international commerce.

China asserts dominion over nearly the entire sea, despite an international arbitration ruling invalidating its broad claims. This has led to clashes with neighboring countries, with incidents involving Philippine and Chinese naval vessels. The Philippines recently called for accelerated negotiations regarding a code of conduct in the sea, citing aggressive Chinese actions.

Vietnam has also condemned China's behavior following alleged attacks on Vietnamese fishing vessels. The possibility of further ASEAN countries voicing their concerns is increasing. However, the importance of shipping through the South China Sea for involved economies could deter the escalation into a larger conflict.

China has been reportedly employing "gray zone" tactics—coercive maneuvers short of armed conflict—to reinforce its claims. Such tactics highlight China's gradual strategy rather than engaging in outright confrontation. Any attempt to restrict freedom of navigation could prompt greater U.S. involvement, yet all parties currently appear to aim at avoiding a full-scale military conflict.