Unintentional Trade Barrier:The global economy has it been disrupted by the Japanese earthquake?

March 11, 2011, earthquake, tsunami and nuclear crisis, the three disasters have destroyed the third largest economy in the world after the USA and China. Japan faces the worst event since the Second World War. The triple disaster has greatly affected the Japanese economy. In addition to the dramatic human consequences, this natural disaster has destroyed production capacity in the affected areas and has caused a supply shortage in electricity. It also disrupted the domestic and international economies, by breaking the chains. This last result is the most contributed to the sharp decline in production in Japan and neighbouring economies.

Japan plays a key role in manufacturing intermediate products, and is the main supplier of equipment parts in the advanced manufacturing sectors, especially in the automotive and electronics. The disaster has led to the suspension of certain production and higher prices. Due to the industrial power, strong exports and wealth capital of Japan, the earthquake has also shake the entire global economic system. Unintentionally, a trade barrier was created with other countries, including Morocco.

Therefore, oil prices, which had soared because of the crisis in the Arab world, including the war in Libya, began to decline. Japan is also the world's largest importer of liquefied natural gas. If faced with a reduction of its nuclear capability, it has to import even more, resulting a significant increase in global prices. Production suspended in many factories in Japan, disrupted transportation, railroad traffic, limiting energy consumption to avoid blackouts. The earthquake caused a drop in raw material prices and worsening global inflation. As a major industrial power, the judgement of the large-scale production in Japan resulted a high decline in demand for energy and raw materials.

By providing key technology products for the electronics and automotive industry, Japan lies at the heart of global production chains, which gives it a strategic place. The disaster has generated breaks chains of production in these sectors, the impact has been particularly noticeable in the countries of Asia, and especially the share of Japan for their imports of intermediate goods is higher than in other regions of world. Japanese raw materials, weigh 70% of the global electronics, main production centers are located in the affected areas. The effects of the earthquake were important as the country produces 40% of global electronic components and 60% of silicone used in microchips! Thanks to high-tech giants like Sony or Toshiba, one camera over two, one TV over six, and one mobile phone over ten transit through Japan. This Asian country is the world's leading manufacturer of anisotropic conductive film ACF, consisting of liquid crystal display LCD, used by famous brands like Samsung, LG, AUO, CMO and Sharp, come from Hitachi Chemicalsitue located in Japan. As for photo lithography equipment, except the Dutch company ASML, these products are all manufactured in Japan by Nikon, Canon or NSK. It is the second global luxury market, Japan ensures 10% of industry giants sales (Gucci, Burberry, Richemont…). L'Oréal, LVMH, Hermes and many other brands have closed their stores for several days in the country. In the automotive industry, not a car is out of production chains of major Japanese automakers, Toyota, Honda and Nissan. Volvo, the automaker most dependent of subcontractors Japanese (10% of parts), had only ten days of GPS and air conditioners inventories "Made in Japan”.

A large part of industries working on tended flow, Japan, that is to say, with very few stocks. In this context, the judgement of some units will disrupt the entire production chain throughout the country. An upheaval that would also affect other countries as Japan exports portion of its production-parts for the automotive and electronic industries in Asia, Europe and the United States. Immediately after the disaster, almost all suppliers have preferred build up stocks, resulting in higher prices. Some retailers have increased their prices by 0.3 to 0.5 dollar per unit. And rising prices has also affected China and other major countries. Two or three days after the earthquake, the prices were inflated by 20% in many stores.

All these information demonstrate the crucial role of Japan in the field of advanced manufacturing industry. However, USA, China, Europe, have been highly affected by Japan’s earthquake. These countries including France, Spain, Belgium and Italy are the major imports partners of Morocco. The main products imported to Morocco from these countries are textile fabric, telecommunications equipment, gas and electricity. A significant increase in global prices of gas was caused because of the natural catastrophe and the high demand of it in Japan. Also the Moroccan industrial sector has been attracting huge foreign direct investment, and the government started focusing in automotive, aeronautics, and electronics. As listed below, Japan provides key technology products and parts for the electronics and automotive industry. We can obviously note the effect of Japan’s earthquake on the world and Morocco, and how this natural catastrophe became an unintentional trade barrier. We would have a different scenario if countries were diversifying suppliers and relying on more than a single country to supply their raw materials, in this way, they would minimize risk of low inventories and avoid breaking the process of production.