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Supply chain cooperation to reduce dependency on China

Australia, India, and Japan forming new supply chain cooperation

Amid rising tensions between China and the US, Australia, India, and Japan have decided to launch a program to strengthen their economic ties. The so-called “Supply Chain Resilience Initiative” (SCRI) was agreed on at a virtual meeting of the three trade ministers in early September. The framework for the supply chain cooperation should be established before the end of the year.

As described in the joint statement issued at the end of the meeting, the goal of SCRI is “to take a lead in delivering a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and in keeping the markets open.”

China is a major trading partner for all three nations but the Covid-19 pandemic and the sino-american trade war have caused supply chain disruptions, thus calling for diversification.

Japan had already entered a cooperation with ASEAN over resilient supply chains earlier this year and wants to combine it with the new initiative with India and Australia. The three countries furthermore called on other countries in the region to join the initiative.

The Quad: ‘arc of democracy’ around China

Also on the security site a deeper arc is formed around China. Together with the U.S., Japan, Australia, and India form the Quadrilateral Security Dialogue, or “Quad”. The informal strategic dialogue was revived in 2017 amid tensions in the South China Sea and is gaining momentum recently.

Deadly clashes at the China-Indian border in June brought India to continue strengthening its ties with the U.S. The U.S. is also opening up to cooperation with India with the very first invite to attend a US-hosted G7 Summit.

The latest sign of deepening military cooperation among China’s rivals is India planning to invite Australia to join its annual Malabar naval exercise.

High-level talks with partners from all “Quad” nations are planned for September and October, US National security adviser Robert O’Brien recently announced.

Global supply chains in urgent need for diversification

The U.S.-China trade tensions, the disruptions to global trade caused by Covid-19 has accelerated a rethink of how global supply chains need to be configurated. It has shown how dependent many nations are on China for key goods and services with the country playing a central role in global supply chains.

The Bank of America (BofA) reports that companies worldwide are already shifting towards a more localized approach when it comes to their supply chains. And the Covid-19 pandemic has catalyzed the process.

“Across 12 industries ranging from semiconductors to capital goods, companies in more than 80% of those industries are rethinking, or plan to rethink, at least some of their supply chains”, says Candace Browning, Head of BofA Global Research. Southeast Asia and India are beneficaries of the realignment of supply chains. “What really did surprise us was the number of companies, particularly in North America and Asia, that intend to ‘reshore’ supply chains to their own country or region”, she added.

According to the research, industrial robots will play an important role to make the transition. BofA forcasts that industrial robots will double to 5 million units by 2025.