From UPSC perspective, the following things are important :
Prelims level : SCRI
Mains level : Global trade tensions with China and its repercussions
With COVID-19 and trade tensions between China and the US threatening supply chains or actually causing bottlenecks, Japan has mooted the Supply Chain Resilience Initiative (SCRI) as a trilateral approach to trade, with India and Australia as the other two partners.
Q.Discuss the efficacy of the idea of Supply Chain Resilience Initiative (SCRI) initiaited by Japan.
What is Supply Chain Resilience (SCR)?
- In the context of international trade, SCR is an approach that helps a country to ensure that it has diversified its supply risk across a clutch of supplying nations instead of being dependent on just one or a few.
- Unanticipated events whether natural or man-made that disrupt supplies from a particular country or even intentional halts to trade, could adversely impact economic activity in the destination country.
What is Japan proposing?
- The pandemic has brought into sharp focus the assembly lines which are heavily dependent on supplies from one country.
- While Japan exported $135 billion worth of goods to China in 2019, it also imported $169 billion worth from the world’s second-largest economy, accounting for 24% of its total imports.
- So, any halt to supplies could potentially impair economic activity in Japan.
- In addition, the U.S.-China trade tensions have caused alarm in Japanese trade circles for a while now.
- If the world’s two largest economies do not resolve their differences, it could threaten globalisation as a whole and have a major impact on Japan.
- It is heavily reliant on international trade both for markets for its exports and for supplies of a range of primary goods from oil to iron ore.
Japan eyeing India as a partner for the SCRI
- Japan is the fourth-largest investor in India with cumulative FDIs touching $33.5 billion in the 2000-2020 periods.
- It accounts for 7.2% of inflows in that period, according to quasi-government agency India Invest.
- Imports from Japan into India more than doubled over 12 years to $12.8 billion in FY19. Exports from India to the world’s third-largest economy stood at $4.9 billion that year, data from the agency showed.
- It is a clear reflection that the two countries are unlikely to allow individual cases to cloud an otherwise long-standing and deepening trade relationship.
Where does Australia stand?
- Australia, Japan and India are already part of another informal grouping, the Quadrilateral Security Dialogue, or the Quad, which includes the U.S.
- Media reports indicate that China has been Australia’s largest trading partner and that it counts for 32.6% of Australia’s exports, with iron ore, coal and gas dominating the products shipped to Asia’s largest economy.
- But relations including trade ties between the two have been deteriorating for a while now.
- China banned beef imports from four Australian firms in May and levied import tariffs on Australian barley.
India’s stand to gain or lose
- Following the border tensions, partners such as Japan have sensed that India may be ready for dialogue on alternative supply chains.
- Earlier, India would have done little to overtly antagonize China. But an internal push to suddenly cut links with China would be impractical.
- China’s share of imports into India in 2018 stood at 14.5%. It supplies dominate segments of the Indian economy.
- Sectors that have been impacted by supply chain issues arising out of the pandemic include pharmaceuticals, automotive parts, electronics, shipping, chemicals and textiles.
- Over time, if India enhances self-reliance or works with exporting nations other than China, it could build resilience into the economy’s supply networks.