China's South China Sea moves a rising risk to US ports and trade
There are increasing concerns that tensions between the US and China over the South China Sea could hit trade routes taking $1.2tn of goods in and out of US ports on the West Coast and Gulf Coast. China is also involved in $4tn of additional global trade, most of which travels through parts of the South China Sea before heading to the Middle East and Europe. Trade, in addition, crossing the East China Sea is increasingly unstable as tensions rise between Japan and China over this different set of islands. While China may seem willing to risk sabotaging its own economy to gain military control, if the risky balancing act fails it could have economic consequences for US ports. 
China Out

(Bullit Marquez)

Nearly 8,000 miles from Alabama's Gulf Coast, military tensions between China and the U.S. in the South China Sea over freedom of navigation laws continue to build. On Friday, the USS Decatur conducted a close patrol of islands that China is claiming as part of its efforts to illegally control the entirety of the 1.4 million square mile body of water.

While Beijing's primary aim is to extend its military sphere of influence throughout the South East Asia region and into the Pacific Ocean, taking control of vast fishing grounds and energy reserves that are situated in international waters, trade routes that take $1.2 trillion of goods in and out of ports on the West Coast and Gulf Coast of the U.S., such as Mobile, are being put at risk.

"If there are major hostilities between the China and U.S., yes, trade is going to fall and the ports here are gonna be busy not taking goods from China," said Howard J. Shatz, senior economic director at RAND Corp., a Washington DC,-based think tank. "But the intertwined nature and sheer size of the trade relationship between the two countries means that a conflict would not benefit either."

On top of China's extensive trade with the U.S., the Asian superpower is also involved in $4 trillion of additional global trade, most of which transits some part of the South China Sea before going on to the Middle East, Asia and Europe. Other trade routes through the East China Sea, a vast area of water north of the South China Sea, are also at risk as Japan and China squabble over a different set of islands. So while it may seem antithetical for China to sabotage its own economic prosperity in an effort to gain greater military control in the region, it's a risky balancing act that, for now, Beijing is willing to undertake.

But should the risk fail, that could have untold economic consequences to U.S. ports.

"Should a crisis occur, the diversion of cargo ships to other routes would harm regional economies as a result of an increase in insurance rates and longer transits," wrote Bonnie S. Glaser, Senior Advisor for Asia, Center for Strategic and International Studies in a recent Council on Foreign Relations report on the South China Sea.

For Mobile, especially, shipping companies taking on longer transit routes means using extra fuel and adding a further layer of calculation of whether it's financially viable to ship to the West Coast and use to trains to send cargo east or go through the Panama Canal and into Gulf ports. Given that Mobile now receives five fully laden cargo ships a week from China, an increase of two since June, a conflict would certainly be a risk to business as the cost would likely be passed onto the consumer.

There is also a severe risk to energy supplies. Approximately one-third of the world's liquefied natural gas passes through the Straits of Malacca and into the South China Sea, bound for Japan and South Korea, both of which are allies of the United States and would expect assistance in the event of an energy supply shortage brought on by issues with China.

Alabama Port Authority CEO Jimmy Lyons, however, is unmoved by the issues unfolding on the other side of the world. "I don't see it as an issue, it's mostly saber rattling," he said of China's claims to the South China Sea and its regional disputes with neighbors. "China can't do without our trade, they have too much to lose and would cut themselves off."

Over the last three years, China has thumbed its nose at its neighbors, Vietnam, Malaysia, the Philippines, Brunei and Taiwan, and the international community, by building man-made islands close to two natural island chains known as the Spratelys and Paracels. In doing so, it has hampered foreign fishing fleets from catching fish in the large swathes of international waters it now claims, while also making it difficult for its neighbors to explore oil reserves situated off their coasts.

Despite being hundreds of miles away from China's coast, Beijing claims that the man-made islands, built by dumping millions of tons of sand onto reefs that sit just below the water, is enough to give it exclusive rights to the entire sea. The newly created islands allow China's navy to to conduct longer patrols without having to return mainland China. The Chinese military has placed military ports, air strips and troops across the vast island chain.

It was hoped that the recent United Nations court ruling at The Hague, rejecting China's claim of exclusive territorial rights in the region would stop Beijing. However, its navy continues to patrol the entire region, forcing military fleets from neighboring countries to cease international patrols, while trillion dollar trade routes remain exposed.

While the United States has said that it will not become involved in the territorial dispute over the three island chains, it will ensure that freedom of navigation laws, that enable any country to use international waters, are strongly enforced.

"The U.S. Navy will continue to conduct routine and lawful operations around the world, including in the South China Sea, in order to protect the rights, freedoms and lawful uses of sea and airspace guaranteed to all -- this will not change," said Adm. John Richardson, chief of naval operations.

But the U.S., whether it likes it or not, is already involved in the territorial disputes. Should China and the Philippines enter into some kind of conflict, the U.S. military would be obliged to help under the 1951 Mutual Defense Treaty with the Philippines. The treaty states, "Each Party recognizes that an armed attack in the Pacific Area on either of the Parties would be dangerous to its own peace and safety and declares that it would act to meet the common dangers in accordance with its constitutional processes." And as recently as last year, the U.S. said it would honor that pact.

So while the U.S. is actively trying to deter China from blocking freedom of movement in the South China Sea, risking an armed conflict in the process, it also has to be wary of increased military tensions between Beijing and Manila.

While Shatz of RAND Corp. says that it's hard to determine right now if a conflict between the two countries was a likely scenario, he does recognize the inherent dangers to trade that even a small military skirmish might cause. "In the absence of hostilities, the difference on trade is between zero and not noticeable, but should there be a miscalculation from either the U.S. or China, an exchange of fire, that could have untold consequences on trade between the two."