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.
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.
- 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.
Why 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.
Role of Australia
- 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.
What for India ?
- 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.