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How U.S.-China skirmish in South China Sea could affect trade

China got angry at the United States this week because a U.S. warship sailed within 12 miles of artificial islands that China is building in the South China Sea.

What was the warship doing there? It was sending a signal to China not to use the islands for territorial claims that could interrupt the massive amount of goods — everything from shirts made in Vietnam to machinery built in Malaysia — that flow through that sea on their way to the United States and other nations.

China then warned the United States not to "create trouble out of nothing" in the region.

If the U.S.-China skirmish escalates, it could threaten U.S. imports from Southeast Asia. That's worrisome for U.S. consumers, retailers and the major ports, especially the ports of Los Angeles and Long Beach.

We asked Seth Kaplowitz, a finance lecturer and expert on international business at San Diego State, to explain the dispute and its possible effect. Here's an excerpt:

Why should American consumers care about this spat?

The top 10 imported products to the United States go through that neck of the woods. That includes oil, machines, electronic equipment, pharmaceuticals and furniture. If things get worse, consumers and businesses might not be able to get their goods when they would want them.

Is that an imminent threat?

I don't see that. China doesn't want to disrupt their exports. It depends on those exports to bolster its economy. But until this dispute is settled, China is going to flex its muscle and there's going to be tension.

And it's not just Chinese exports, right?

We're also talking about exports to the United States from Vietnam, the Philippines, Cambodia, Brunei, Malaysia and other nations that travel through the South China Sea. If these nations can't get their goods out because of China's moves, the United States is going to be deprived and that's a problem for those nations' economies.

So what's this U.S.-China conflict all about?

The trade route through the South China Sea is one of the busiest in the world. China is claiming territory in the region, with the help of dredging projects and man-made islands it's building in an effort to claim more territory.

What's wrong with that?

The more territory they gain, the more they can expand their exclusive economic zone in the region. China has claimed virtually the entire South China Sea as its own. If it controls that, it can control who goes through, who doesn't go through and that really could impede international trade.

China's warning that the U.S. destroyer was coming too close to Chinese waters is an example of how they're trying to control that territory.

What is the U.S. policy toward China's efforts?

The United States has the largest navy in the Pacific and they're basically the world's policeman. They're trying to keep the shipping lanes open. The United States depends on this route for trade and so does Australia, South America and other nations.

And how much of that trade goes through the ports of Los Angeles and Long Beach?

U.S. container imports last year totaled $723 billion nationwide and of that, $282 billion went through those ports, according to the Port of Long Beach. The majority of those imports that arrived at the two ports, or $166 billion, came from China.

Is this mostly an economic issue or a political one?

Both. What's going on here involves a lot of politics. One of the things China is doing is providing bravado for its constituents, showing them that China is not going to take any nonsense from the United States. But it's also creating a diversion from everyone's focus on China's economic woes.

What could make the situation worse?

One scenario would be China putting in a blockade to stop trade in an effort to establish its claims to the area. I don't see that happening in the near future. But China is going to rattle its saber until such time as it's pushed back.

james.peltz@latimes.com

Twitter: @PeltzLATimes

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