Challenges of Supply Chain Restructuring in Japan

ABSTRACT

The risks of high trade dependence on China have been highlighted by the COVID‐19 pandemic and rising tensions between the US and China, prompting calls to restructure the supply chain of some industries. These concerns are particularly prevalent in the clean energy sector, where China dominates by manufacturing low‐cost products. In response, the US and the EU have begun to implement protectionist measures, while Japan has adopted a more cautious approach. In the clean energy sector, developed countries are pursuing “decarbonisation,” “de‐risking from China,” and “economic stabilisation” simultaneously for the supply chain restructuring. Rapid de‐risking from China combined with decarbonisation could lead to higher inflation and put a strain on public finances, ultimately causing economic instability. Given the current global reliance on China for resources related to the clean energy transition, achieving the three objectives simultaneously is practically impossible, so developed countries face a “trilemma.”. This paper argues that a more strategic approach is needed to balance the three objectives by accepting the risks of fiscal balance, China, and delayed decarbonisation, and mitigate the problem. This is important for supply chain restructuring in the clean energy field, and Japan too should implement strategic policies to strike this balance.