How the South China Sea Code of Conduct Will Make China $3 Trillion Richer

Let's hope today's South China Sea code of conduct (COC) negotiations result in a stalemate.

South China Sea code of conductThe COC has already been in limbo for roughly 15 years. In 2002, China and the members of the Association of Southeast Asian Nations (ASEAN) signed the nonbinding - and ineffectual - Declaration on the Conduct of Parties in the South China Sea.

The declaration was designed to preserve the strength and independence of the smaller nations in Southeast Asia, but thanks to a total lack of enforcement, China has essentially been doing what it pleases and claiming the whole region for itself.

But now, China and the members of ASEAN are meeting to hammer out a more concrete code.

And thanks to China's inordinate power in the region, any consensus reached in the dispute will signal China's unequivocal victory in the South China Sea conflict, once and for all.

And that could be today.

Here's what we mean...

Beijing's South China Sea Victory Made Possible by Shabby Groundwork

China has historically disavowed all binding legal propositions, doing what it wants instead of what the international community decrees.

So why did China suddenly change its mind?

The framework on which today's talks are based is weak - which is precisely what China needs to clutch total economic control over the region.

Defense Stocks Are Skyrocketing See How You Could Profit from This Incredible Company Before It's Too Late

While the framework was not made public, Reuters did share a leaked, two-page blueprint that consisted of a "broad" outline that left "[a] wide scope for disagreement," the outlet reported on Aug. 6.

"It urges a commitment to the 'purposes and principles' of the United Nations Convention on the Law of the Sea (UNCLOS) but does not specify adherence to it," Reuters reported.

This "urging" without consequences is exactly the kind of feeble agreement under which China has done what it pleases in the South China Sea for the past several decades. And China plans to keep it that way, as evidenced by what was cut from the framework for today's talk.

Reuters also shared a separate ASEAN document, dated May 2017, which showed that Vietnam had originally urged for stronger, more specific language in the framework and had wanted mention of a dispute resolution mechanism and respecting "sovereignty, sovereign rights, and jurisdiction."

"Sovereign rights cover entitlements to fish and extraction of natural resources," the media site explained.

But those May stipulations never resurfaced in Aug. 6's agreed-upon framework.

It's easy to extrapolate why: China would never concede to sovereignty claims by ASEAN members that would specifically allow fishing and the extraction of natural resources to be made within. That would translate to Beijing willingly and knowingly giving up billions of dollars' worth of resources to other countries.

Yeah, right.

But the vaguely worded framework, finalized on Aug. 6, from which the Red Dragon and ASEAN nations will work today?

That's fine.

That's perfect, in fact.

It gives China, in particular, a lot of wiggle room to make adjustments as it sees fit.

And this is why we'd better hope that today's talks don't result in a consensus.

Editor's Note: Don't miss a single update on the South China Sea as Beijing steps up its aggressive campaign to oust the United States from the disputed waters. Get real-time alerts sent to your inbox, completely free, here.

Because a consensus would make China $3 trillion richer.

How the South China Sea Code of Conduct Will Make China $3 Trillion Richer

As a vital artery of trade for many of the world's largest economies, the South China Sea sees some $3.37 trillion worth of goods passing through its waters annually, with $1.2 trillion of that total accounting for trade with the United States.

Should China agree to a COC today - one that's based on such a vague framework - you can be sure that the agreement will benefit China.

If China successfully negotiates a binding arrangement in its favor today, the United States would feel the following consequences... immediately:

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Beijing could impose mass tariffs on the goods that pass through the South China Sea, or issue trade embargos at will on any nation that displeases the Red Dragon.

And Beijing is already hinting at plans for military control of the region, as well. It has been drafting maritime "traffic safety" standards since 2015 that would require foreign submarines to stay surfaced and display their national flag.

For the United States, this means $1.3 trillion of our international trade would be completely at China's mercy.

Mark our words, these are the likely outcomes should China come out of the COC negotiations the clear winners.

Investing in Drones Will Be Like Investing in Smartphones in 2009: If you've thought of drones in military terms or just as toys, this is a wake-up call. Find out more.

And we've already seen that some ASEAN nations are cowing to China's persuasion as it works to rebrand itself as a "regional friend."

In August, Filipino President Rodrigo Duterte essentially conceded to Beijing's demands in the region.

And on Oct. 31, China cooperated with the nations of the South China Sea (with the exception of Vietnam) in joint maritime rescue drills in the disputed region.

In short, Beijing's olive branch tactics seemed to have worked with ASEAN members ahead of today's COC negotiations.

And with the South China Sea COC all but agreed upon, there would just be one thorn in China's side left in the way...

A U.S.-China Conflict in the South China Sea Would Affect the Entire World

With ASEAN members on Beijing's side, a battle in the South China Sea would boil down to a Sino-American conflict.

This is because the United States regularly performs "freedom of navigation" operations (FONOPs) in the region.

China wants the U.S. Navy out - once and for all...

But Money Morning Executive Editor Bill Patalon, who has been watching Beijing's movements for years and following developments in the "Asian arms race" for three decades, says the United States won't budge.

Which could one day lead to a U.S.-China war, ASEAN nations be damned.

Time and again, Bill has recommended that his Private Briefing subscribers invest in the companies that will quite literally shield America from enemy weapons in the years ahead.

One such firm is Boeing Co. (NYSE: BA).

Boeing has helped install America's THAAD and GMD missile defense systems, located all over the world, but especially concentrated in the South Pacific.

When Bill first recommended Boeing, it was trading at $61.92.

Today, the aircraft manufacturer is trading at $262.17.

That's a 323% increase.

Bill says that, "In general, Boeing sees 'strong and resilient' growth over the next 20 years."

That could be an understatement...

Because back on June 20, Boeing raised its 20-year industry forecast for plane deliveries from 29,530 jetliners to 41,030, with their value at list prices topping $6 trillion for the first time ever.

Indeed, Bill's prescient BA call a few years back has been a boon for readers who have been following along.

But Bill has made another lucrative discovery, as well...

Up Next: Rare Gold Anomaly

Bill just caught something on his gold charts that he's only seen twice in the past 20 years. A $13 billion gold anomaly he calls the "Halley's Comet of investing."

It's very rare, and fleeting, and Bill sees things lining up perfectly to bring some very sizeable precious metal profits to well-positioned investors.

Click here to check out his research...

Follow Money Morning on Twitter @moneymorningFacebook, and LinkedIn.

Related Articles: