The South China Sea, key to global commerce, is at the centre of territorial disputes, notably involving the Philippines and China, which have escalated military tensions and raised security concerns.

These disputes threaten the stability of crucial maritime trade routes, underscoring the urgency of diplomatic efforts to maintain peace and ensure economic stability in the region. Achieving peace is essential not only for preventing potential economic losses but also to achieve the “Peace Dividend” of increased trade, investment, and economic growth. The interconnectedness of peace, security, and prosperity in this strategic maritime corridor highlights the need for collaborative resolutions to safeguard the future of international trade.

The South China Sea (SCS) is one of the busiest parts of the world’s oceans, with an estimated third of world trade passing through waters 1. It is a highly contested region, with five claimant states disputing their overlapping borders. While far from an active warzone, tensions in the region have been rising, with China’s more assertive military presence, such as maritime patrols and aerial operations near Taiwan.

A potential blockade of Taiwan could cost the global economy USD 2.7 trillion in the first year.

This has led to observers to increasingly consider the region as a possible security risk. At the forefront of these considerations is a potential blockade of Taiwan, which the Institute for Economics & Peace (IEP) estimates could cost the global economy $US 2.7 trillion in the first year.

Security Concerns in the Philippines and the South China Sea

The Philippines is another claimant country that has begun to bolster its military capabilities in the region. A US-Funded port in its northern province, joint US-Filipino military drills and a commitment to receive possible fleeing Filipino workers in the strait of Luzon from Taiwan are among the most recent developments it’s initiated, both to guarantee its own safety and support its neighbour across the Bashi Channel2. IEP estimates Manila would stand to lose around 2.5 per cent of GDP in a conservative estimate, without accounting for the possible costs the Philippines would lose from the ensuing humanitarian and military crisis.

Other challenges Manila faces are the increased presence of Chinese military fishing vessels, which the Philippines say occasionally block Filipino fishermen attempting to access the Scarborough Shoal, an area claimed by both countries. Furthermore, both countries accuse the other of ramming their ships into one another, and attempting to unnecessarily raise tensions in the SCS, for which Manila’s official name is the West Philippine Sea. Both countries have engaged in dialogue over how to peacefully resolve their issues in the region, citing peace and stability as a “common goal of countries in the region”. Still, it is clear the SCS has room for improvement.

The relationship between economic success and peace is captured by the “peace dividend”.

Impact on Trade

In the newly released Business and Peace Report 2024 by IEP, the relationship between economic success and peace is captured by the “peace dividend”. This term refers to the efficiencies that accrue to businesses and the economy because of a range of factors that are associated with peace. The same factors that create peace, known as Positive Peace, also create an optimal environment for business to flourish and can be measured through IEP’s Positive Peace framework.

For countries in the SCS, achieving their goals of peace and stability could mean, among other things, better economic output, higher rates of foreign direct investment (FDI), more stable interest rates and currencies, increased trade and higher business formation. Because of the systematic nature of Positive Peace, it is very likely that, if it increases in the region, economic development will follow in a positive feedback loop.

Alternatively, were peace to continue to deteriorate and possibly cause conflict in the region, the opposite would also be true, where conflict and economic crisis would go hand in hand. According to the Business and Peace 2024 report, disruptions arising from conflict lead to declines in trade. Infrastructure damage, supply chain disruptions, and heightened security measures can result in higher transportation and transaction costs, directly influencing import prices. On the export side, the depreciation of a country’s economic conditions during conflict, reduced production capacity, increased risk perception among trading partners, and the potential decline in the quality of products, can lead to a deterioration in the prices of exported goods.

Conflict in the region would cause losses of between 10-33 per cent of GDP to Taiwan, Singapore, Hong Kong, Vietnam, Philippines, and Malaysia.

More specifically to the region, a 2021 study published by the US National Bureau of Economic Research found that conflict in the region would cause severe losses of 10 to 33% of GDP to Taiwan, Singapore, Hong Kong, Vietnam, Philippines and Malaysia3.

Impact on the Eight Pillars of Positive Peace

According to the 2024 Positive Peace Index, countries that make up the South China Sea collectively have an average Positive Peace score of 2.928/5 (with 0 being most peaceful and 5 being least peaceful), which if the region was counted as a single country, would rank it 60th on the index. Notably, the average scores for “Sound Business Environment” (SBE) and “Good Relations with Neighbours” (GRN) were higher (worse) than the region’s average Positive Peace score.

The South China Sea is a key region for global markets that has in recent years seen greater tensions. Naval and aerial escalation has led the global community to consider the potential implications resulting from conflict in the region. Despite this, with peace and stability as central objectives, the region still has immense potential to seize the Peace Dividend and improve upon its Positive Peace. Mahatma Ghandi once said, “There is no road towards peace, peace is the road”.

If you wish to learn more about Positive Peace, take action or read IEP’s latest research, consider joining the IEP Peace Academy and becoming a Peace Ambassador.


  1. 1. United Nations Conference on Trade and Development (UNCTAD). Review of Maritime Transport 2016, 2017
  2. 2. Philippines to build US-funded port on island facing Taiwan | South China Morning Post
  3. 3. Kerem Cosar & Benjamin Thomas, 2021. “The geopolitics of international trade in Southeast Asia,” Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 207-219, February



Santiago Del Moral

Partnerships Associate, IEP

Vision of Humanity

Vision of Humanity is brought to you by the Institute for Economics and Peace (IEP), by staff in our global offices in Sydney, New York, The Hague, Harare and Mexico. Alongside maps and global indices, we present fresh perspectives on current affairs reflecting our editorial philosophy.