A deepening dispute between China and Japan over a cluster of tiny uninhabited islands, some no bigger than rocks jutting out of the East China Sea, threatens to throw one more (big) monkey wrench into the slowing machinery of the global economy.History shows that it is countries that have close ties and/or contacts that are most likely to go to war. While I don't see the conflict over these particular islands going much further, conflicts over the natural resources and traffic through the South China Sea may well continue to produce friction. If not this, some other seemingly insignificant dispute could push things toward war (e.g., the Austria-Hungarian's push for a humiliating apology and reprisals pushed Europe into WWI).
. . . The resulting boycott of Japanese goods has brought a sharp contraction in Japanese exports to mainland China as the gunboat confrontation on the high seas has morphed into a wider economic front. On Tuesday, Japanese carmakers reported sales cratered in September –- Toyota's numbers were cut in half –- in what some analysts warn is just a preview of the looming fallout from the high-stakes confrontation.
. . . The impact of a Chinese boycott would fall hardest on Japan, where economic growth slowed sharply in the second quarter and is expected to continue to decline. China represents an important market for Japan’s export-reliant economy. Last year, roughly 20 percent of Japanese semiconductor exports were sold to Chinese manufacturers.
. . . But an economic strike against Japan’s supply chain could quickly backfire on Beijing and reverberate throughout the Chinese economy, according to Biswas.
“The bigger concern is the longer term impact on supply chains,” he said. “A lot of Japanese investment -- about $80 billion -- has gone into China in the last 15 years and a lot of that is supply chain for their big multinationals.”
“If they decide to move away from China, that’s going to hurt Chinese jobs as well,” he added.