Editor’s Note: This is part four of a four-part series on Indo-Pacific Supply Chain.
Global supply chains have been driven by economic efficiency. Lead firms of major supply chains – automobiles, electronics, pharmaceuticals, garments – have encouraged geographical diversification of production for maximizing cost efficiencies of different locations. The strategy has resulted in internationalization of industrial production.
Priorities driving supply chains are changing. Economic efficiency is no more the only key driver. Minimizing geopolitical risks has become an equally important determinant.
The threat of economic coercion has exacerbated geopolitical risks for supply chains. Important sourcing locations have become geopolitical empowered as they can influence flows of vital inputs – raw materials and intermediates – to various supply chains. Apprehensions over some countries using such power for destabilizing supply chains and extracting geopolitical gains are worrying other actors and countries in these chains.
Anxieties over supply chain disruptions have grown into national security concerns. Pharmaceutical and health product supply chains are vulnerable to disruptions in sourcing of bulk drugs, drug intermediates and active pharmaceutical ingredients (APIs). The disruptions have serious implications for managing public health crises in various countries. Similarly, critical mineral supply chains can break down from interruptions in upstream mineral supplies leading to shortage in availability of large batteries used for decarbonized products like electric vehicles.
China is a typical example of a large sourcing hub capable of using economic influence for projecting geopolitical power. Its command over global supplies of rare earths has led it to economically coercive actionsfor geopolitical motives. In recent times, China’s trade coercive actions on Australia have attracted significant attention.
The US has also used economic heft for influencing trade relations. The tendency was heavily visible during the Trump Administration. The North American Free Trade Agreement (NAFTA) and bilateral trade deals with Japan and Korea were reworked for suiting US interests.
The US’s use of economic influence in trade relations was largely for advancing interests of American workers and businesses. But the Chinese actions had other motives. These were for ‘punishing’ countries for resorting to anti-China diplomatic positions.
The trade actions against Australia were prompted by the latter’s calls for independent inquiry into the origins of the COVID19 pandemic. Similarly, China’s ban on Canadian beef and meat exports earlier were fallouts of Canada arresting the CFO of Huawei Technologies.
China’s proclivity to use trade coercion on countries working against its strategic interests raises concerns over its likely use of similar tactics for disrupting supply chains.
Using sourcing dependency for geopolitical gains is a dangerous trend. In densely integrated production networks spread across continents, the tendency can easily spark political tensions between countries. Export bans and import restrictions announced on flimsy grounds can choke sourcing, disrupt supply chains and destabilize international relations.
It is hardly surprising therefore that many countries have become proactive for safeguarding supply chains. The most prominent efforts for doing so, till now, are between the US and its allies.
The Quad – comprising the US, Japan, Australia and India – is working on enhancing resilience of supply chains in critical technologies (e.g. 5G deployment and technical standards), vaccine production and clean energy. India, Japan and Australia – three major Indo-Pacific powers – have announced the supply chain resilience initiative (SCRI). The G7 (US, UK, Japan, Germany, France, Italy and Canada) has also committed to making supply chains resilient.
The initiatives indicate that supply chains are no longer being looked at only through the prism of economic efficiency. Geopolitical perspectives have become equally significant.
It is also obvious that safeguarding supply chains for minimizing geopolitical threats is not a goal that countries can individually achieve. It is a shared concern and a collective responsibility.
As a G7 member, Canada has already become a part of its mission to secure supply chains. As the Indo-Pacific region acquires greater prominence in Canadian foreign policy, and efforts expand for deepening partnerships with regional allies, collaboration on supply chains is inevitable.
The ongoing US-China race for technological supremacy will further enhance geopolitical risks for many supply chains. These will be felt most in the battleground of the Indo-Pacific. Global middle powers with large economies – UK, Canada, Australia, Japan and India – need to work together for protecting supply chains in their own interests. Canada’s robust engagement with key actors in the Indo-Pacific will go a long way in serving these interests.
Dr. Amitendu Palit is a senior research fellow and research lead (trade and economic policy) at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). He is an economist specializing in international trade policies, regional economic developments, comparative economic studies and political economy of public policies. He worked with the government of India for several years, with his longest span being in the Department of Economic Affairs in the Ministry of Finance. Prior to joining ISAS in April 2008, he was with the Indian Council for Research on International Economic Relations (ICRIER), a leading economic policy research institute and think tank in Delhi. His research focuses on the economic and political implications of India’s integration with the Asia-Pacific region, the impact of mega-regional trade agreements and the various determinants of external trade and integration policies of China and India. His books include The Trans-Pacific Partnership, China and India: Economic and Political Implications; China India Economics: Challenges, Competition and Collaboration; and Special Economic Zones in India: Myths and Realities (co-authored). He has also edited several books and published in peer-reviewed academic journals. He is a columnist for India’s well-known financial daily, Financial Express, and a regular contributor to the China Daily. He appears regularly as an expert on the BBC, Bloomberg, Channel News Asia, CNBC, Australian Broadcasting Corporation (ABC), Doordarshan (India) and All India Radio.
