In a recent interview with Kitco News, Hal Kempfer, CEO of Global Risk Intelligence & Planning (GRIP) and a retired marine intelligence officer, provided a detailed analysis of the escalating tensions in the South China Sea and their potential global economic impact. Kempfer stated that the situation in the South China Sea is currently on a “hair trigger,” and he emphasized that this region represents America’s most significant financial interest.
Kempfer told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News, that the South China Sea is a critical artery for global trade, with around 44% of maritime container traffic passing through the narrow Taiwan Strait. According to Kempfer, if this crucial route were to be blocked, it would force ships to take a much longer route around Australia, significantly increasing shipping costs and times. He added that disruptions in other global shipping routes, such as the Red Sea, have already had a notable impact, increasing global shipping distances, or “ton miles,” by 5%. Kempfer pointed out that back in 2016, around 21% of all global trade passed through the South China Sea, highlighting its immense importance to the global economy.
In his discussion, Kempfer said that any conflict in the South China Sea would not only disrupt trade but could also lead to severe supply chain issues, particularly for essential goods such as semiconductors. He explained that Taiwan, which produces a substantial portion of the world’s semiconductors, would see its exports completely halted, causing massive disruption to industries reliant on these components. Kempfer noted that this would affect everything from electronics to automotive production, leading to significant economic fallout.
Furthermore, Kempfer highlighted China’s dominance in the rare earths market, crucial for high-tech manufacturing. He stated that China has systematically cornered the market for rare earths through decades of subsidized production, effectively knocking out competitors in other countries. According to Kempfer, if conflict disrupts China’s ability to export these materials, it would have a devastating impact on global high-tech industries, as these resources cannot be quickly sourced from alternative suppliers.
Kempfer also pointed out that China controls significant portions of the global lithium supply chain, a key component in battery production. He explained that much of the lithium processed in China comes from global sources, including South America, and any disruption in the South China Sea would severely impact the global supply of lithium, further exacerbating supply chain issues.
Kempfer expressed concern that even short of a full-scale conflict, ongoing skirmishes in the region could create inflationary pressures worldwide. He emphasized that the ripple effects of any disruption in the South China Sea would be far-reaching, potentially leading to overwhelming inflation and significant economic instability. Kempfer stated that the full economic impact is difficult to quantify, but it would undoubtedly be severe, with second and third-order effects that could devastate the global marketplace.
Featured Image via Pixabay
