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A third of the world’s maritime transport, worth 4.8 trillion dollars of international trade, passes through the waterway, which links Asia with Europe and Africa.

A military conflict in the South China Sea would cause a major disruption to world trade and economic impact for many economies, including Australia, according to a report. (Getty)

China, along with the Philippines, Vietnam, China, Brunei, Taiwan, and Malaysia have different, sometimes overlapping, territorial claims on the waterway.

China claims more than 80 percent of the territory that stretches up to 2,000 km from mainland China to Indonesia and Malaysia.

Since 2014, Beijing has built artificial islands on reclaimed reefs in the waterway and installed military bases on them.

The study is based on the closures of the Strait of Malacca between Malaysia and Indonesia and the east-west passage between the Pacific and Indian Oceans through the South China Sea.

Warships of the Royal Australian Navy joined American and Japanese vessels in military exercises across the South China Sea earlier this year. (Defense Department)

The researchers said it would not be feasible to divert shipping through the Torres Strait to northern Australia because coral reefs and shallow waters make it dangerous for large container ships.

South Korea and Japan would experience similar declines.

But the economies of other nations that depend on international trade and lack huge domestic spending would suffer much worse.

Taiwan’s economy would shrink by a third, while Singapore’s economy would shrink by 22 percent.

The economy of the Philippines, Malaysia and Taiwan would contract by a third, while the economy of Singapore would shrink by 22 percent, according to the baseline estimate.

The diagram shows how global trade routes should change if a conflict breaks out in the South China Sea. (Image: Center for Strategic and International Studies) (Supplied)

Hong Kong, Vietnam, the Philippines and Malaysia would experience declines of between 10% and 15%.

But China’s economy would only face a 0.7 percent drop because it has huge domestic markets and ports outside of the projected conflict region.

The study authors emphasized that they only looked at the impact of increased shipping costs.

There could be a much greater impact to national economies with any disruption to essential goods and services, such as energy imports.

It also failed to consider the broader effects of trade embargoes and shipping blocks during a dispute.

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Australia, for example, would not be able to ship iron ore and other natural resources to China even if the longest trade route to its northern ports were open.


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