Deepening economic relationships among members of the Quadrilateral Security Dialogue, better known as the Quad, to increase technological and energy security amid China’s growing influence in the Asia-Pacific, could have long-term credit implications resulting from supply-chain and trade reconfigurations, according to a new report by Moody’s Investors Service.
While existing regional frameworks will continue to underpin trade flows, the greater economic focus of Quad member countries—Australia, India, Japan, and the US—will drive some trade shifts along alliance lines, although stopping short of changing China’s centrality to regional trade. These shifts include greater Australian commodity exports toward India, and a spur in demand for US and Japanese technology and equipment.
Member nations’ rising economic focus to counter China’s growing influence in APAC will drive trade shifts along alliance lines, benefiting their technology and energy sectors. The Quad’s effects on geopolitical tensions could change capital flows and international business activity, but China’s economic importance tempers these trends, the report said.
“The economic realignment will benefit member countries’ technology and energy sectors as they seek to reduce reliance on Chinese-produced critical materials and technologies that are key inputs to tech and renewable energy products. These trends will affect production of inputs for advanced computing, renewable energy, 5G telecommunications equipment and semiconductors,” says Nishad Majmudar, a Moody’s Assistant Vice President and Analyst.
In particular, India stands to benefit from greater trade and investment flows, although at a gradual pace due to regulatory hurdles. It will likely be a growing destination market for goods from fellow Quad countries, while the US and Japan will continue to be major sources of foreign direct investment in India’s services, telecommunications and software sectors.
The Quad’s effects on geopolitical tensions could alter capital flows and international business activity – for instance, any increase in member countries’ tensions with China could drive companies to diversify their production centers in APAC. But these shifts may occur only slowly because Quad governments will be cautious not to antagonize China, given their existing deep commercial ties.