Quad partners push supply chain resilience

Quad partners push supply chain resilience

Felix Kim

Indo-Pacific partners are working together to make their supply chains more resilient and less dependent on the People’s Republic of China (PRC) for vital technology components.

Australia, India, Japan and the United States announced the formation of a critical- and emerging-technology working group following a virtual summit of the Quadrilateral Security Dialogue (Quad) on March 12, 2021. The working group will be designed to help the countries develop innovative technologies, according to a joint statement issued following the summit.

The announcement follows a pair of initiatives geared toward supply chain resilience: the Supply Chain Resilience Initiative (SCRI) launched in 2020 by Australia, India and Japan; and an executive order dealing with supply chain resilience signed by U.S. President Joe Biden on February 24, 2021. (Pictured: U.S. President Joe Biden holds a microchip before signing an executive order to secure critical supply chains.)

Economic officials from the three founding countries kicked off SCRI in September 2020 to provide a “free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment,” Reuters reported.

The COVID-19 pandemic revealed the need to address weaknesses in supply chains. Lockdowns in multiple countries, including the PRC, halted production and disrupted the distribution of products in areas ranging from medical equipment to technology components.

Since SCRI was announced, Tokyo has provided incentives for Japanese companies to relocate production from the PRC back to Japan or elsewhere in the region, The Japan Times newspaper reported, with Japanese Prime Minister Yoshihide Suga pledging in October 2020 to assist Japanese companies in diversifying their supply chains across Southeast Asia.

India stands to draw investment within the SCRI framework and become a manufacturing hub for innovative technology, trade analysts Rajesh Mehta and Diksha Mittal wrote in a March 9, 2021, essay for India’s The Daily Guardiannewspaper.

With U.S. manufacturers including Ford Motor Co. facing microchip shortages, the U.S. is allocating U.S. $37 billion to boost domestic microchip manufacturing. “We need to make sure these supply chains are secure and reliable,” President Biden said in signing the executive order.

The next day, U.S. officials met with microchip makers in Taiwan to discuss closer cooperation and “the significance of the U.S.-Taiwan trade relationship and their critical role in securing supply chains around the world,” the American Institute in Taiwan announced.

Beijing has used its position as a dominant supplier of rare earth elements, which are vital to electronics manufacturing, to pressure its trading partners. In 2010, for example, the PRC limited the export of rare earth elements to Japan because it detained a Chinese fisherman for fishing illegally in Japanese waters.

The recent chip shortage exposed an overreliance on the PRC for critical supplies, Michael Harris, founder of Cribstone Strategic Macro in London, told FORUM.

“There was already a preexisting objective in the U.S. to minimize reliance on China for geopolitical reasons,” he said, adding that it makes sense for countries to collaborate on diversifying their supply chains.

Felix Kim is a FORUM contributor reporting from Seoul, South Korea.