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Shipping Is Staying Cool About Taiwan

The maritime insurance industry sees little elevated risk from China’s exercises.

Braw-Elisabeth-foreign-policy-columnist3
Braw-Elisabeth-foreign-policy-columnist3
Elisabeth Braw
By , a columnist at Foreign Policy and a fellow at the American Enterprise Institute.
Cargo ships are seen at a harbor in Taiwan.
Cargo ships are seen at a harbor in Taiwan.
Cargo ships are seen at a harbor in Keelung, Taiwan, on Aug. 7. Annabelle Chih/Getty Images

U.S. House Speaker Nancy Pelosi’s visit to Taiwan brought an immediate response from Beijing: live-fire exercises in the waters surrounding the island for four days after her visit. China declared that additional drills in the Yellow and Bohai Seas, near South Korea and Japan, would follow until the end of the month—and stated that Taiwan’s “median line,” an unofficial division of space between the two sides, had never existed and would not be respected.

The shipping industry is paying close attention, as it did in the weeks before Russia’s invasion of Ukraine. On Feb. 15, maritime insurers decided an invasion was imminent and raised the Russian and Ukrainian waters to the industry’s highest risk category. At the moment, ships are still going to and from Taiwan. But whether supplies will keep arriving at the island nation and be exported from it depends on the shipping industry’s assessment of Beijing’s intentions.

This past weekend, China’s exercises proceeded with such an enormous show of strength that Taiwan’s defense ministry declared the assault to be a simulated attack on Taiwan’s main island.

U.S. House Speaker Nancy Pelosi’s visit to Taiwan brought an immediate response from Beijing: live-fire exercises in the waters surrounding the island for four days after her visit. China declared that additional drills in the Yellow and Bohai Seas, near South Korea and Japan, would follow until the end of the month—and stated that Taiwan’s “median line,” an unofficial division of space between the two sides, had never existed and would not be respected.

The shipping industry is paying close attention, as it did in the weeks before Russia’s invasion of Ukraine. On Feb. 15, maritime insurers decided an invasion was imminent and raised the Russian and Ukrainian waters to the industry’s highest risk category. At the moment, ships are still going to and from Taiwan. But whether supplies will keep arriving at the island nation and be exported from it depends on the shipping industry’s assessment of Beijing’s intentions.

This past weekend, China’s exercises proceeded with such an enormous show of strength that Taiwan’s defense ministry declared the assault to be a simulated attack on Taiwan’s main island.

On Sunday, China’s exercises turned even more provocative, with Chinese ships crossing the median line. “The Taiwanese side monitored Chinese ships as they ‘pressed’ the line, in an effort to deny them the chance to cross,” Sky News reported, quoting a source as explaining that “one side tries to cross, and the other stands in the way and forces them to a more disadvantaged position and eventually return to the other side.”

These first days of simulated attacks haven’t deterred shipping companies or their insurers. On Sunday, the Marshall Islands-flagged container ship Spirit of Lisbon was, for example, docked at the Taiwanese port of Taichung, waiting to depart for the Chinese port of Xiamen. Around her, the port was busy, and as usual, other ships were waiting off the coast for their turn to dock. At the port of Mailiao, the Panama-flagged bulk carrier Atlantic Tiger had just arrived after a 27-day journey from Morro Redondo, Mexico. She, too, was surrounded by vessels waiting to offload their cargo and receive Taiwanese goods.

In London, maritime insurers were watching attentively. I asked Neil Roberts—head of marine and aviation at Lloyd’s Market Association, which represents underwriters, and secretary of the Joint War Committee (JWC), a London-based body that classifies the world’s waters according to risk—how concerned insurers are. Higher risk means more expensive insurance. And if the JWC places a body of water in its highest-risk category—as it did with the Sea of Azov and the Russian and Ukrainian parts of the Black Sea on Feb. 15—the terms of cover have to be confirmed through negotiation instead of slotted into preexisting arrangements, making it difficult to obtain insurance at all.

But as of Sunday, the JWC had not elevated any waters around Taiwan to its highest-risk category. In fact, those waters are not listed by the JWC at all, which means they are not considered to pose an elevated risk to shipping, though it goes without saying that crews have been informed of the exercise areas and are expected to avoid them. “Underwriters were naturally asking questions but were reassured by JWC’s advisors, who said that there are no real signs of preparation or intent to follow through [on military attacks against Taiwan],” Roberts told FP. “If there were other signs like a media blackout, that would indicate differently. JWC considers the situation to be as it appears: an exercise, albeit amidst aggressive rhetoric.” China’s intent seems to be to send a message to Taiwan and the United States, not undertake a hugely difficult and highly risky amphibious invasion or even attempt to seize outlying islands like Kinmen. “There are navigation warnings that shipping companies will take into account, but access to Taiwan’s ports is entirely possible with just some extra awareness needed,” Roberts added.

Somewhat paradoxically, the underwriters seemed assured by the fact that the Chinese exercises appeared to have been preplanned, with Pelosi’s visit simply a convenient excuse. Although China was informed of Pelosi’s visit as far back as June, exercises of this scale can’t be planned with a few weeks’ notice, and Taiwan’s top diplomat in the United States told PBS on Aug. 5 that they were premeditated and had been “long in the coming.” Perhaps as a result of this premeditation, the live fire has so far landed within the Chinese-designated areas and has not harmed commercial vessels—though on Thursday, five Chinese missiles landed in Japan’s exclusive economic zone.

“Tensions have been in the background for some time with reef-building and fishing vessel confrontations, but without clear examples of physical threat or damage to commercial shipping, it would be an overreaction to require international shipping to notify insurers and, in some cases, incur additional premiums when transiting Taiwanese waters or calling Taiwanese ports,” Roberts said. “There is an increased risk of accidental collisions, and Taiwan said it would be studying whether sea routes needed adjustment.” Air routes, too, may need to be adjusted, though at the moment, there’s very little commercial air traffic in Taiwanese airspace—and most of it involves flights by Taiwan’s national carrier, China Airlines.

On Feb. 14, Russia announced it would be withdrawing its troops from Ukraine’s border. The following day, the JWC raised Russian and Ukrainian waters to its highest-risk category. I suspected the committee was overreacting, but it clearly had exquisite sources and a keen sense of risk. The fact that the JWC and the shipping industry aren’t spooked by China’s chest-beating so far is good news for Taiwan. Indeed, a slump in shipping traffic to the island may be one of the best available indicators to predict future serious trouble. Make sure to check your shipping trackers.

Elisabeth Braw is a columnist at Foreign Policy and a fellow at the American Enterprise Institute, where she focuses on defense against emerging national security challenges, such as hybrid and gray-zone threats. She is also a member of the U.K. National Preparedness Commission. Twitter: @elisabethbraw

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