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How changes in this dynamic region will affect businesses for decades to come
The Indo-Pacific concept has become the new way in which Canada and other countries are framing their strategy in the region.
The terminology applies to the region stretching from Canada and the United States across the Pacific Ocean, the South China Sea and the eastern and western parts of the Indian Ocean. Today, the region is both the centre of global economic growth and the source of future economic expansion and challenges.
In a geopolitical context, the term is not meant to replace either Asia-Pacific or Asia. Rather, it is used to frame broader policy engagement within the region. While increasingly used by Canada, the United States, Japan, as well as European and Southeast Asian countries, it is not universally accepted.
China sees the term Indo-Pacific through the lens of Cold War-style containment and geopolitical competition. Some critics in Canada see the Indo-Pacific through a similar lens, while others, such as members of the Association of Southeast Asian Nations (ASEAN) understand the term as a tool with the potential to weaken or dilute ASEAN influence in the region.
For Canadian businesses and policymakers, the term Indo-Pacific increasingly will be used as a tool to better frame trade, commerce and policy issues in the region. The issues include non-traditional security challenges such as climate change, transnational diseases, piracy and illegal fishing.
The terminology can also help frame the shifts in supply chains that result from geopolitical issues, economic forces and black swan events such as what we’ve seen over the past two years with the Covid-19 pandemic.
Within the Indo-Pacific, the broader trend is to create multiple sites of production and more resilient supply chains.
A rules-based order is central to the concept of the Indo-Pacific. Canada, Japan, the United States, Australia, India and European countries have come to understand that one of the greatest threats to the region is that rules are not established — and if they are, that they are not followed. With this in mind, these nations are focusing on the importance of contributing to the establishment and maintenance of rules for how we deal with geopolitical, security and economic challenges.
At the same time, a variety of nations are spearheading infrastructure and connectivity projects to build more strategic autonomy into Southeast and South Asia. There are also efforts to build resilience into supply chains, so that they are less susceptible to black swan events or geopolitical disputes.
We also see the selective diversification of supply chains in the tech sector and other dual-use sectors to prevent technologies from being used in military modernization. Production of technologies — such as semiconductors that are used in everything from iPhones to cars, jets and other sophisticated products — is likely to move, meaning that the location where businesses would be able to get their hands on these technologies may shift outside Greater China, and may be found in the networks of trusted and like-minded countries such as Japan, Taiwan, the United States, Australia and South Korea — and, potentially, Germany and other European nations.
The recent AUKUS agreement — among Australia, the United Kingdom and the United States — illustrates this growing trend; the countries have agreed to cooperate on AI, quantum computing, cybersecurity and other high tech and sensitive technologies.
In addition, production of lower value-added products — such as clothes and toys — will gradually shift to South Asia and Southeast Asia, due to cost–benefit calculations. This will be driven by lower labour costs, as well as with an eye to moving manufacturing platforms closer to new consumer markets.
Selected diversification of supply chains does not mean decoupling from the Chinese market. The Chinese market provides an irreplaceable logistics pathway, supplied with human capital and experience in terms of production. This will remain the case in the years to come.
Within the Indo-Pacific, the broader trend is to create multiple sites of production and more resilient supply chains that are transparent, rules-based and insulated from a variety of geopolitical considerations.
The changing situation provides the opportunity for Canadian businesses to extend their footprint within the Indo-Pacific region by taking advantage of the transformations taking place there, thanks to connections between new trade partners, the provision of good governance training and human capital development.
