Tuesday, February 12, 2013

Hard drives and Pacific disputes

Now reading the title of this you might wonder what Hard drives and territorial disputes in the Pacific ocean could possibly have to do with one another. As you may be privy to we experienced a hard drive shortage due to some natural disasters in 2011 and the reverberations of this can still be felt in prices today to some degree. One thing to note in all of this is that a fair share of the companies with production in Thailand and other places are owned by Japanese companies. With tensions rising between Japan and China over a set of disputed islands one might wonder if a potential conflict could exacerbate the shortage and drive prices up again.

The dispute is over small islands in the East Asian sea known as Diaoyu in China and the Senkaku in Japan. Some what recently there have been semi severe incidents in which a provocation was a real risk. An example of this recently is a Chinese vessel locking radar onto a Japanese warship. The Pacific is full of such disputes especially considering the nine dotted line map China released showing the territory they see as rightfully theirs.

But what does this have to do with hard drive supplies? Well an overlooked problem is one we faced previously as a bottle neck and that is the motor. Japan's Nidec firm which produces around 80% of the motors has some portion of its manufacturing based in China. Any conflict may reduce the production capacity of this operation and thus limit the number of hard drives available. A possible conflict could create other problems as computer components are manufactured all over East and South East Asia and a conflict between China and one of those parties may bring to bear significant barriers to trade for the duration. At the end of it the cost to trade will ultimately be paid by consumers who would have to pay premiums for technology goods whose supplies are strained.

The next question is how likely is all of this. Personally I believe China and Japan will find that it is not in their best interest to pursue a conflict, and that this is a rather unlikely scenario. It is not in China's best interest to become a belligerent power as it goes against their philosophy of a peaceful rise, which they have been using the assuage the concerns of regional powers. Japan would suffer in losing market access to China and the loss in manufacturing for companies with plants based there. Ultimately it doesn't look like it would be a positive for either power, however pride and territorial disputes can make nations act rather irrationally.

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