Dr Philip Shetler-Jones
The economic shock from what Niall Fergusson calls ‘Gulf War III’ is largely being transmitted through the medium of the global shipping industry. The proportion of the world’s fossil fuel sourced from the Persian Gulf is only part of the reason this war risks triggering a global recession. A less examined reason is the critical importance of major Asian economies (China, Japan, South Korea, Taiwan) to global commerce, combined with their vulnerability to the breakdown in the international shipping network that carries their fuel but also the parts and products to assembly and markets. It is important to understand this fragility and consider ways to mitigate it in order to prepare for a similar crisis that could spread out from a possible conflict over Taiwan.
The economies of China, Japan, South Korea and Taiwan account for over a quarter of nominal global GDP, and much more than that if measured in terms of purchasing power parity. All of them rely on maritime trade for a large portion of their energy supply and the transportation of industrial inputs and products. Their economies are linked to each other and those of nations across the region and the world by a dense and complicated supply chain network. If something happens to cause that network to break down or shipping to stop, the effect on the global economy would be comparable to what is taking place as a consequence of Gulf War III.
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