Economy & Trade

US and China Drills Simultaneously Unfold in South China

Nowpattern

10 5月 2026 — 15 min read

⚡ FAST READ1-min read

In early 2026, large-scale simultaneous exercises by both US and Chinese forces in the South China Sea have pushed the risk of accidental military conflict to its highest level since the Cold War. This is a critical juncture where Japan's sea lane defense and the reliability of the Indo-Pacific alliance are directly tested, and a failure in escalation management could inflict trillions of dollars in annual damage to the global economy.

── Understand in 3 points ─────────

• The US Navy conducted multiple multilateral exercises, including "Freedom Edge" and "Valiant Shield," across the Indo-Pacific region from January to March 2026. Carrier strike groups led by USS Carl Vinson and USS Abraham Lincoln were deployed to the South China Sea, maintaining the largest forward deployment posture in the past five years.
• The Chinese People's Liberation Army Navy (PLAN) conducted large-scale live-fire exercises across the South China Sea in February 2026. A fleet including the aircraft carrier Fujian carried out anti-ship missile launch drills around the Spratly Islands, while Coast Guard vessels continued intimidating actions against Philippine resupply ships around Second Thomas Shoal and Scarborough Shoal.
• From late 2025 to early 2026, at least 12 dangerous close encounters (near misses) between US and Chinese military aircraft and vessels have been reported in the South China Sea. In June 2025, a J-16 fighter jet dangerously approached a P-8A patrol aircraft (approximately 6 meters), which the US Department of Defense condemned as "reckless and dangerous."

── NOW PATTERN ─────────

The "spiral of conflict," where both the US and China mutually escalate their military presence in the South China Sea, has become structural. Simultaneously, the intersection of US "overstretch of power" (the burden of two-front operations) and "alliance strain" within regional alliances (differences in commitment among member states) is pushing the risk of accidental conflict closer to being uncontrollable.

── Probability and Response ──────

🟡 Basic 55% — Agreement to avoid escalation at US-China summit, stable operation of military hotline, dangerous close encounters maintained at less than 3 per month, tone of joint statement at ASEAN Foreign Ministers' Meeting.

🟢 Optimistic 20% — Concrete agreement at Trump-Xi meeting, progress in ASEAN-China COC framework agreement, resumption of regular US-China military hotline operation, visible decrease in dangerous close encounters.

🔴 Pessimistic 25% — Use of force at Second Thomas Shoal, disruption of US-China military communications, outburst of nationalist public opinion in China, Nikkei 225 sharp decline of over 5%, crude oil price surge (over $100 per barrel).

Genre:#Geopolitics/Security #Economy/Trade #Finance/Markets

Event:#Military_Conflict #Treaty_Alliance_Changes #Competition_Market_Share_Struggle

Dynamics (Nowpattern):#Spiral_of_Conflict #Overstretch_of_Power #Alliance_Strain

📡 THE SIGNAL — What Happened

Why it matters: In early 2026, large-scale simultaneous exercises by both US and Chinese forces in the South China Sea have pushed the risk of accidental military conflict to its highest level since the Cold War. This is a critical juncture where Japan's sea lane defense and the reliability of the Indo-Pacific alliance are directly tested, and a failure in escalation management could inflict trillions of dollars in annual damage to the global economy.

Military Exercises — The US Navy conducted multiple multilateral exercises, including "Freedom Edge" and "Valiant Shield," across the Indo-Pacific region from January to March 2026. Carrier strike groups led by USS Carl Vinson and USS Abraham Lincoln were deployed to the South China Sea, maintaining the largest forward deployment posture in the past five years.
Chinese Military Movements — The Chinese People's Liberation Army Navy (PLAN) conducted large-scale live-fire exercises across the South China Sea in February 2026. A fleet including the aircraft carrier Fujian carried out anti-ship missile launch drills around the Spratly Islands, while Coast Guard vessels continued intimidating actions against Philippine resupply ships around Second Thomas Shoal and Scarborough Shoal.
Dangerous Close Encounters — From late 2025 to early 2026, at least 12 dangerous close encounters (near misses) between US and Chinese military aircraft and vessels have been reported in the South China Sea. In June 2025, a J-16 fighter jet dangerously approached a P-8A patrol aircraft (approximately 6 meters), which the US Department of Defense condemned as "reckless and dangerous."
Artificial Island Fortification — China has deployed three runways (Fiery Cross Reef, Subi Reef, Mischief Reef), anti-ship cruise missiles (YJ-12B), surface-to-air missiles (HQ-9B), and electronic warfare equipment on seven artificial islands in the Spratly Islands, effectively operating them as forward military bases.
Sea Lanes — The annual trade volume passing through the South China Sea is approximately $5.3 trillion (about 30% of global trade). Since about 80% of Japan's energy imports pass through this area, freedom of navigation is directly linked to Japan's economic security.
Legal Framework — The 2016 Hague arbitration ruling determined that China's extensive territorial claims based on the nine-dash line had no legal basis, but China continues to reject this ruling as "a piece of paper."
Japan's Response — Japan's "National Security Strategy," revised in December 2025, explicitly states that stability in the South China Sea "directly affects Japan's security." Japan Maritime Self-Defense Force (JMSDF) destroyers have tripled the frequency of joint exercises in the South China Sea compared to 2020.
Philippine Situation — Since 2024, President Marcos has hardened his stance against China, explicitly expanding the scope of the US-Philippines Mutual Defense Treaty to the South China Sea. He has granted US forces access to four new bases under EDCA, strengthening the alliance.
AUKUS Cooperation — As Pillar II of AUKUS, joint development of AI, quantum, and undersea autonomous vehicle technologies directly enhances surveillance capabilities in the South China Sea. Australia's nuclear submarine program will have a long-term impact on the regional balance of power.
Military Communications — The US-China military hotline was temporarily cut off after the 2023 balloon incident but was restored at the Xi-Biden meeting in November 2023. However, since 2025, China has repeatedly refused to respond whenever tensions rise in the Taiwan Strait.
Chinese Military Budget — China's publicly announced defense budget reached 1.76 trillion yuan (approximately $242 billion) in 2026, a 7.2% increase year-on-year. However, actual military spending is estimated by the Stockholm International Peace Research Institute (SIPRI) to be 1.5-2 times the official figure, putting it at around $360 billion.
US Military Budget — The US defense budget for fiscal year 2026 is approximately $886 billion, with about $9.3 billion allocated to the Indo-Pacific Deterrence Initiative (PDI). Approximately 40% of the PDI is used to strengthen defense capabilities along the First Island Chain, including the South China Sea.

It is no coincidence that the South China Sea has come to be called "the world's most dangerous waters." This tension is the result of structural changes spanning at least half a century, and the current rise in conflict risk must be understood within its historical context.

**Origins in the Cold War (1947-1991)**

China first drew the "nine-dash line" on maps in 1947. The then-Republic of China government claimed sovereignty with an "eleven-dash line," which was later revised to the "nine-dash line" by the People's Republic of China. During the Cold War, the South China Sea was peripheral to the US-Soviet rivalry, and with the limited capabilities of the Chinese navy, territorial disputes were shelved. Deng Xiaoping put forward the policy in 1979: "Sovereignty belongs to us, disputes can be shelved, and joint development can be pursued," and this "strategic ambiguity" supported decades of stability.

**Post-Cold War and the Rise of the Chinese Navy (1991-2012)**

After the collapse of the Soviet Union in 1991, the United States maintained the security order in the Asia-Pacific as the "sole superpower." However, China's rapid economic growth accelerated its military modernization. The trauma of being unable to deter the approach of two US aircraft carriers during the 1995-96 Taiwan Strait Crisis became the origin of China's A2/AD (Anti-Access/Area Denial) strategy. In the 2000s, China began developing the DF-21D anti-ship ballistic missile ("carrier killer"), building capabilities to restrict the freedom of action of US forces within the First Island Chain.

The 2012 Scarborough Shoal incident was a turning point. This event, where China established effective control through a standoff with the Philippines, proved that "salami-slicing tactics" (the accumulation of faits accomplis) could succeed without strong international backlash.

**Artificial Island Construction and Militarization (2013-2020)**

Under the Xi Jinping administration, China extensively reclaimed seven reefs in the Spratly Islands, creating over 3,200 acres of artificial islands. This was "China's Maginot Line," fundamentally altering the military balance in the South China Sea. Three of these artificial islands were equipped with 3,000-meter-class runways, enabling fighter jet operations. The 2016 Hague arbitration ruling rejected China's territorial claims, but China ignored this ruling and further accelerated militarization.

**From the Biden Administration to Trump's Second Term (2021-2026)**

The establishment of AUKUS in 2021 introduced a new variable to the regional power balance. The transfer of nuclear submarine technology to Australia signifies the long-term build-up of deterrence against China's dominance in the South China Sea. The Biden administration continued "Freedom of Navigation Operations" (FONOPs) and focused on strengthening alliance networks.

When President Trump took office again in 2025, his China policy further increased uncertainty. While the Trump administration demanded increased defense spending from allies, it tended to avoid clarifying security commitments regarding Taiwan and the South China Sea. This "strategic ambiguity" carries the risk of sending incorrect signals to China.

**Why Now is Dangerous**

There are three reasons why the current situation in 2026 is particularly dangerous. First, the frequency of physical proximity between US and Chinese forces in the South China Sea has dramatically increased. Second, the reliability of military communication channels has deteriorated, and mechanisms for controlling accidental escalation are insufficient. Third, the deepening involvement of regional actors such as the Philippines, Vietnam, and Japan makes it easier for bilateral issues to trigger multilateral chain reactions.

History teaches that unintended clashes between great powers are most likely to occur when both sides are convinced that "the other will not escalate." Just as in Sarajevo in 1914, the next crisis in the South China Sea could begin in a way no one desires.

The delta: With both the US and China conducting large-scale military exercises simultaneously in the South China Sea, and the frequency of physical contact dramatically increasing, the "probability barrier" for accidental conflict is approaching a critical point. The previous assumption of "dangerous but controllable" has begun to crumble. In particular, China's pattern of selectively disrupting military communication channels is the most structurally dangerous change, as it nullifies the safety net for escalation management.

🔍 BETWEEN THE LINES — What the Reports Aren't Saying

Behind the official statements, the most noteworthy aspect is China's tactical use of "selectively disrupting" military hotlines. While outwardly stating that "communication channels are open," by delaying responses during periods of heightened tension, China aims to instill anxiety in the US—that it cannot contact China during a crisis—thereby encouraging self-restraint in US actions. Furthermore, the Trump administration's view of the late March summit with Xi Jinping as a "deal-making opportunity" implies the risk that South China Sea security issues could be reduced to bargaining chips in trade negotiations. China understands this dynamic well and is making subtle calculations to accumulate maximum faits accomplis within the bounds of "not escalating too much before the summit."

NOW PATTERN

Spiral of Conflict × Overstretch of Power × Alliance Strain

Intersection of Dynamics

The "Spiral of Conflict," "Overstretch of Power," and "Alliance Strain" — these three dynamics mutually reinforce each other, structurally destabilizing the situation in the South China Sea.

As the spiral of conflict intensifies, the US is compelled to commit additional military resources to the Indo-Pacific, but the overstretch of power limits its ability to withdraw resources from other regions. This "capability gap" creates anxiety among allies, widening alliance strain. When countries like Japan and the Philippines begin to doubt, "Will the US truly come to our aid in a crisis?", they pursue their own military buildups and hedging strategies, further militarizing the region. This, in turn, accelerates the spiral of conflict—completing a vicious cycle.

China skillfully exploits these three dynamics. In the spiral of conflict, it satisfies nationalism by "not yielding its position"; it aims for overstretch of power by escalating actions in the South China Sea when the US is preoccupied elsewhere; and it uses alliance strain to divide ASEAN nations through individualized approaches.

The most dangerous scenario is the moment these three dynamics simultaneously peak—for example, a situation where, while the US faces a new crisis in the Middle East, China intensifies its blockade at Second Thomas Shoal, and the Philippines responds aggressively, presuming US support. At this point, the US would face the limits of two-front (or even three-front) operations, forced to make painful choices between alliance credibility and its own resource constraints.

Historically, such "structurally unstable equilibria" can sometimes be maintained for long periods, but they always carry the risk of sudden collapse due to external shocks (unexpected military incidents, sudden domestic political changes, economic crises). The South China Sea in 2026 is precisely built upon this "unstable equilibrium."

📚 PATTERN HISTORY

1914: From the Sarajevo Incident to World War I

A chain of alliances and a military escalation spiral among great powers led to a world war nobody wanted.

Structural similarities with the present: When the conflict structure between great powers becomes fixed and the security dilemma deepens, a single accidental incident can trigger a chain of escalation. The "display of military presence" can become a fuse for conflict rather than a deterrent

1962: Cuban Missile Crisis

Military brinkmanship between the US and Soviet Union brought them to the brink of nuclear war, but it was averted through backchannel diplomacy.

Structural similarities with the present: The existence and reliability of military communication channels are critically important in controlling accidental escalation. Just as the US-Soviet hotline was established after the crisis, the deterioration of trust in US-China military communications is the biggest risk factor

1988: Spratly Islands – Johnson South Reef Skirmish (Sino-Vietnamese Naval Battle)

Chinese and Vietnamese navies clashed over territorial claims in the South China Sea. China seized the reef by force.

Structural similarities with the present: In the South China Sea, "small clashes" carry significant risks. In the 1988 battle, 64 Vietnamese soldiers died. Limited use of force set a precedent for creating "faits accomplis"

2001: Hainan Island Incident (EP-3 Reconnaissance Aircraft Collision)

A US Navy EP-3 reconnaissance aircraft and a Chinese Navy J-8 fighter jet collided in mid-air over the South China Sea. The Chinese pilot died, and the US aircraft made an emergency landing on Hainan Island.

Structural similarities with the present: A concrete example of peacetime military contact escalating into an accidental collision. Negotiations between the two governments took 11 days, and diplomatic relations severely deteriorated. The current frequency of contact is more than 10 times that of 2001, and the risk is increasing exponentially

2012: Scarborough Shoal Standoff

In a maritime standoff between China and the Philippines, China established effective control through "salami-slicing" tactics.

Structural similarities with the present: If the international community does not take clear countermeasures, "gradual changes to the status quo" will succeed. Despite the 2016 arbitration ruling being unfavorable to China, the fait accompli of effective control was not overturned. The gap between legal legitimacy and military reality is at the core of the problem

Patterns Revealed by History

The patterns shown by historical precedents are clear. When military confrontation between great powers becomes normalized, and the reliability of communication channels deteriorates, an accidental conflict makes escalation control extremely difficult. The 1914 Sarajevo Incident demonstrated how a chain reaction of alliances could escalate into an uncontrollable war. The 1962 Cuban Missile Crisis proved the critical importance of backchannel diplomacy and direct communication. The 2001 Hainan Island Incident is a concrete example of how an accidental collision in the South China Sea can rapidly escalate into a diplomatic crisis, and given the current frequency of contact, the probability of a similar incident occurring is orders of magnitude higher.

However, the most important lesson comes from the 2012 Scarborough Shoal incident. China's "salami-slicing" tactics will continue to succeed unless the international community clearly establishes "red lines." This lesson directly applies to the ongoing situation in the South China Sea—unless the US and its allies clarify "how much is acceptable," China's gradual changes to the status quo will continue, and the risk of accidental conflict will increase when the "limit of acceptability" is finally exceeded.

🔮 NEXT SCENARIOS

55%Basic

20%Optimistic

25%Pessimistic

55%Basic Scenario

**Sustained Tension and Managed Conflict (Normalization of the Gray Zone)** The most probable scenario is one where both the US and China avoid direct military conflict while maintaining the confrontation in the South China Sea as a "managed state of tension." This is an extension of the past decade, as both countries recognize that the costs of full-scale military conflict (economic damage, risk of nuclear escalation) far outweigh the benefits. Specifically, China will continue "gray zone operations" by fronting its Coast Guard and maritime militia, avoiding direct involvement of its regular military to remain at lower rungs of the escalation ladder. The US will continue FONOPs (Freedom of Navigation Operations) and multilateral exercises but will act within limits that do not cross China's "red lines" (direct military action against artificial islands). Dangerous close encounters and near misses will occur several times a month, with diplomatic protests and statements exchanged each time. However, as long as both military command structures maintain clear instructions "not to engage," the probability of accidental conflict will be suppressed. The summit between Trump and Xi Jinping (scheduled for late March 2026) could serve as an opportunity to confirm the political will to avoid escalation. The biggest risk in this scenario is "habituation." As the normalization of the gray zone comes to be perceived as "normal," the tolerance for judgment errors at the pilot and captain level decreases, and the probability of minor incidents escalating into unexpected situations gradually increases.

Implications for Investment/Action: Agreement to avoid escalation at US-China summit, stable operation of military hotline, dangerous close encounters maintained at less than 3 per month, tone of joint statement at ASEAN Foreign Ministers' Meeting.

20%Optimistic Scenario

**Strengthening Crisis Management Mechanisms and De-escalation (Partial Détente)** In the optimistic scenario, both the US and China, recognizing the risk of accidental conflict in the South China Sea, agree to strengthen crisis management mechanisms and move towards partial de-escalation. Several conditions must be met for this scenario to materialize. First, a framework agreement for a "Code of Conduct in the South China Sea" is reached at the Trump-Xi meeting (late March 2026), establishing at least a prior notification system for military exercises. Second, both countries agree to reliably operate the US-China military hotline on a 24-hour basis. Third, China agrees to implicit rules regarding resupply at Second Thomas Shoal in bilateral talks with the Philippines. Both the US and China have political incentives to avoid military conflict in the first half of 2026. President Trump, facing midterm elections, wants to show a "deal" in trade negotiations with China. Xi Jinping needs to address a slowing domestic economy and does not desire deeper diplomatic isolation. If institutional crisis management mechanisms are established during this "mutually unwilling to clash" window, medium-term stabilization could be possible. Historically, the establishment of a hotline between the US and Soviet Union after the 1962 Cuban Missile Crisis significantly contributed to crisis management during the subsequent Cold War. A similar "post-crisis institutional building" could occur in the South China Sea—however, this carries the ominous implication that a "crisis" might need to precede it.

Implications for Investment/Action: Concrete agreement at Trump-Xi meeting, progress in ASEAN-China COC framework agreement, resumption of regular US-China military hotline operation, visible decrease in dangerous close encounters.

25%Pessimistic Scenario

**Accidental Military Conflict and Chain Escalation** In the pessimistic scenario, an accidental military conflict occurs in the South China Sea, and escalation management fails. This is the pattern of "a war nobody planned," and it could materialize through the following pathways: **Scenario Example**: Chinese Coast Guard physically blocks a Philippine resupply ship near Second Thomas Shoal → Philippine Navy deploys for escort → Chinese Navy intervenes → US forces deploy to support Philippine forces → Accidental shooting incident occurs → Military communication channels fail, and escalation becomes uncontrollable. Alternatively, a pattern where dangerous close encounters between US and Chinese military aircraft in the air escalate into an aerial collision is also conceivable (a repeat of the 2001 Hainan Island Incident). Given the current frequency of contact, statistically, the probability of a collision has increased more than tenfold compared to 2001. The ripple effects of a conflict would be severe. Navigation risks in the South China Sea would skyrocket, maritime insurance premiums would surge, and supply chains would be disrupted. Instability in this region, through which 30% of global trade passes, could inflict trillions of dollars in annual damage to the global economy. Japan would be forced to secure alternative routes for crude oil and LNG imports, and energy prices would soar. In the worst case, a limited military conflict could escalate and link with the Taiwan Strait issue. An explosion of nationalism within China, with public opinion demanding "no tolerance for humiliation in the South China Sea," would restrict Xi Jinping's response options. This "domestic political lock-in" would make de-escalation through rational judgment impossible.

Implications for Investment/Action: Use of force at Second Thomas Shoal, disruption of US-China military communications, outburst of nationalist public opinion in China, Nikkei 225 sharp decline of over 5%, crude oil price surge (over $100 per barrel).

Key Triggers to Watch

Trump-Xi Summit (Visit to China): March 31 – April 2, 2026
Next response by China Coast Guard to Philippine resupply ship at Second Thomas Shoal: March – April 2026 (during resupply rotation)
Progress of Code of Conduct (COC) negotiations in the South China Sea at ASEAN Foreign Ministers' Meeting: June 2026 (ASEAN Foreign Ministers' Meeting)
Large-scale Chinese Navy exercises (especially the deployment of aircraft carrier Fujian in the South China Sea): April – June 2026
US Congressional deliberation on Indo-Pacific Deterrence Initiative (PDI) budget: July – September 2026 (FY2027 budget deliberation)

🔄 TRACKING LOOP

Next Trigger: Trump-Xi Summit March 31 – April 2, 2026 — Whether a concrete agreement on military crisis management mechanisms in the South China Sea is reached will be the most critical event influencing the risk of conflict within the year.

Continuation of this Pattern: Tracking Theme: South China Sea Escalation Path — The next milestone is the Trump-Xi summit (late March), followed by confirmation of COC negotiation progress at the ASEAN Foreign Ministers' Meeting (June).

How do you read this? Participate in Prediction →

Sources

CSIS AMTI: South China Sea archive