A global chokepoint: Why the Taiwan Strait matters

From a distance, the First Island Chain looks like a simple maritime arc stretching from Japan through Taiwan and the Philippines toward Borneo. In reality, it is one of the world’s most important geographic features — not only for defense, but also for millions of households that have to make do with limited resources.

But if China attacks Taiwan in a bid to take over the self-governed island, a ripple effect could break the maritime cordon in the First Island Chain and bring serious economic consequences for the developing world. There would be no exemption — including the Philippines, which sits at the southern gate of the western Pacific.

Latest data from the Philippine Statistics Authority show inflation last month remained within the Bangko Sentral ng Pilipinas’ 1.4% to 2.2% forecast range, despite accelerating to an 11-month high of 2% from 1.8% in December.

READ: Philippine inflation rate hits 11-month high of 2% in January

The Congressional Policy and Budget Research Department of the House of Representatives said heightened geopolitical tensions — including a possible conflict between China and the United States over Taiwan — could lead to renewed inflationary pressures through supply shocks and higher import costs.

Over the long term, the department said “persistent and intensified tensions” could trigger worldwide economic fragmentation that would bring substantial uncertainties and erode market sentiment.

Taiwan’s geopolitical position and its role in global value chains mean any shift in the cross-strait status quo would carry profound ramifications for international stability and prosperity, according to the policy research institute Center for Strategic and International Studies, or CSIS.

READ: Breaking the maritime cordon: Why China wants Taiwan

Chester Cabalza, a defense analyst and president of the think tank International Development and Security Cooperation, told INQUIRER.net that in the event of what he described as an existential shock, Taiwan would become China’s “forward base,” aimed at “retaliating from Japan’s militaristic stance” and “challenging US supremacy in the western Pacific.”

“Northern Luzon will become an automatic buffer zone, and EDCA, or Enhanced Defense Cooperation Agreement, sites would become the first line of defense,” Cabalza said.

READ: Marcos: No way PH can stay out of China-Taiwan tussle

President Ferdinand Marcos Jr. has said the Philippines would not be able to stay out of a conflict if China seizes Taiwan by force. “Inevitable,” he said. The risks, however, would not be limited to military concerns.

Vital for maritime economy

In its report “Crossroads of Commerce: How the Taiwan Strait Propels the Global Economy,” CSIS said “maritime trade is the lifeblood of the global economy,” noting that “each year, thousands of massive container ships and tankers ferry more than $11.5 trillion in goods and energy across the world’s oceans.”

It said these vessels follow established routes that converge at strategic chokepoints where maritime traffic is especially vulnerable to disruption. Asia’s geography, and its centrality to global commerce, have heightened the importance of chokepoints like the Strait of Malacca and, increasingly, the Taiwan Strait.

CSIS said an estimated $2.45 trillion worth of goods — over one-fifth of global maritime trade — passed through the Taiwan Strait in 2022. It warned that disruptions, even through less severe actions by China, could send shockwaves well beyond Beijing and Taipei, affecting key US allies and broad swaths of the Global South.

CSIS said disruption to merchant traffic “may prompt shipping companies to avoid the area to limit risks and avoid increased costs from spikes in insurance premiums,” placing “trillions of dollars’ worth of trade” at risk.

Based on CSIS data, 18.77% of the Philippines’ total trade passes through the Taiwan Strait, with 21.57% of imports and 14.8% of exports traversing the waterway.

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The think tank said many countries would feel the effects of potential disruptions, but Japan and South Korea — which the Philippines considers key partners for trade, development assistance, and investment — would be among the most affected, given their reliance on the Taiwan Strait for imports, exports, and shipments of electronics and machinery.

The CSIS estimated that 32% of Japan’s imports and 25% of its exports — a total of almost $444 billion — transited the strait in 2022. South Korea depended on the Taiwan Strait for 30% of its imports and 23% of its exports, amounting to about $357 billion in goods, it said.

Critical stake

CSIS, in its report “Understanding Global South Perspectives on Taiwan,” said the economic cost of a Chinese invasion of Taiwan — estimated to reach $10 trillion — would “fall heavily on the developing world,” which it said would suffer disproportionately from a global economic downturn and face major supply chain disruptions.

Taiwan, it said, produces over 90% of the most cutting-edge chips used in smartphones, data centers, and advanced military equipment, warning that disruptions to the supply of these technologies could wipe “trillions of dollars” from global gross domestic product, or GDP.

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“The precedent of larger powers using force to incorporate smaller ones could destabilize fragile borders around the world, especially if Beijing were to succeed,” CSIS said. It added that “many Global South countries prefer to chart a nonaligned path in which they do not have to ‘choose’ between the US and China, instead maximizing the benefits both powers can offer.”

“A war over Taiwan would make such a position impossible,” CSIS said.

Cabalza said China and Taiwan are major trade partners of the Philippines, particularly for semiconductors and electronics, which he said account for a large portion of Philippine manufacturing and exports. He said any disruption would “weaken local production and consumer tech.”

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Based on data from the Observatory of Economic Complexity, the Philippines exported $2.79 billion in semiconductor devices in 2024, primarily to China ($663 million), Hong Kong ($390 million) and Singapore ($383 million). It imported $1.76 billion, mainly from China ($591 million), South Korea ($195 million) and Taiwan ($156 million).

Cabalza said: “The biggest socioeconomic risks would be the immediate loss of billions of pesos in remittances from overseas Filipino workers in Taiwan.”

The BSP has said Taiwan consistently ranks among the top 10 sources of cash remittances.