Home Economy Japan is under pressure from the US to split its supply chain

Japan is under pressure from the US to split its supply chain

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Hello from Tokyo where the weather is fine but the situation of Covid-19 is not. Japan has maintained a fragile balance so far, controlling the pandemic without closing schools or shops, but the emergence of variant strains is making it more difficult. With less than 1% of the population vaccinated, new “emergencies” restrictions are expected soon. That will cause the economy to continue to decline in the second quarter.

One person who has been vaccinated is Prime Minister Yoshihide Suga, who picked up the phone early so he could go to Washington last week to attend a summit with US President Joe Biden. One of the outcomes of that meeting is the New Competitiveness and Resilience partnership, which covers a series of measures targeting technology supply chains and is the subject of today’s paper. Charted Waters breaks exports affected by the Suez Canal congestion incident.

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A worrisome trade threat to global growth

When former US President Donald Trump launched trade wars between 2016 and 2020, some economists feared it would harm a complex supply chain that brought components from across Asia to the chain. assemble them in China and turn them into American-designed technology products. such as the iPhone. So far, however, those fears have not disappeared.

Speaking at the IMF’s regional economic outlook launch last week, Jonathan Ostry, the organization’s vice president of Asia, said the US-China tariff had consumed about 0.5 percent of the total product. global domestic market. But while tariffs often have the effect of destroying and redirecting trade, they have yet to divide the world into separate economic blocs.

“We don’t see much evidence of this dichotomy, and we are comfortable with that,” says Ostry. “Because the risks of this – these trade tensions translate to technological tensions and technology disengagement – will cause much greater costs to the global economy, possibly to a greater extent. in extreme situations, compared to risks posed by tariff tension. ”

But that split may not be happening yet. While Trump has his own, unique stance on trade – focusing on America’s bilateral deficit with other countries – Biden’s new administration appears to be less concerned with tariffs and more in technology. . Washington has taken another step in that direction now weeks ago The US-Japan summit, where the two countries agreed a new one Partnerships for competitiveness and resilience, including $ 4.5 billion to research 5G and 6G mobile technologies and a commitment to “collaborate on sensitive supply chains, including semiconductors”.

One concern for Washington is how dependence is being made on the growing complexity of global supply chains, with implications for national security. The most obvious example is the reliance of global firms – among them American automakers – on Taiwan-based chipmaker TSMC, which has struggled to respond. to meet the demand for their products during a pandemic.

Another, more frustrating goal is to exclude Chinese technology from mobile networks and prevent China from gaining an advanced position in chip manufacturing. With the help of Japan, the US has a better chance to protect its manufacturing interests and stay away from China. For example, in semiconductor lithography, the dominant supplier is the Dutch ASML. But every ASML machine needs a laser light source, which is so important that the customer specifically specifies it, such as the engine on a passenger plane. There are two suppliers of these lasers: Cymer, a subsidiary of ASML in the United States; and Gigaphoton, a Japanese subsidiary of the Komatsu construction equipment company.

The US has imposed export controls on China’s top chipmaker, SMIC. Japan is currently under pressure to take similar steps. While Washington’s goal is to maintain the status quo of the low-cost supply chain and America’s technological dominance, these policies increase the risk of fragmentation, with different standards and parallel supply chains. are appearing in the US and China. That would cause real economic pain for everyone.

“There will be more than just a cold effect on technology in the trade of high-tech products. Ostry will also make a move to much less efficient manufacturing around the world. “These are our formulations for future poor productivity and growth performance and we hope to avoid them.”

For Tokyo, tough rhetoric at a summit is one thing, but for now, joining an American project to decouple the supply chain has been a more difficult prospect. As if to highlight the risks, Chinese President Xi Jinping pointed out aside before Washington’s attempts to decouple. “The rules set by one or more countries should not be imposed on others, and the unilateralism of each country should not set a rhythm for the world,” he said.

Water is plotted

Are you a European consumer waiting for the arrival of a fancy exercise bike? Or an Asian construction company waiting to order construction materials? Then, expect a delay.

The chart above, from E2open, the supply chain software makers, breaks down the amount of goods clogged by the Suez Canal, showing Asian carmakers and manufacturers, along with households Europe, particularly affected. While one could imagine that trade from Asia to Europe would be hit hard, we were more surprised at the exposure of the flow between India and the United States. Data from the project44, a logistics data provider, said the total value of cargo trapped due to Ever Given’s unexpected stop was more than $ 80 billion.

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