Written by Marcin Szczepański.
The growing importance of global supply chains has fundamentally changed the way the global economy and goods manufacturing are organised. While trade conducted through global supply chains has fallen somewhat as a share of total trade since the 2008-2010 global financial and economic crisis, more than two-thirds of international trade still involves transactions made possible by such chains. The EU is profoundly involved in these production chains, more so than most other countries, and significantly more than both the United States and China.
The pandemic disrupted many supply chains at its outbreak, and the subsequent economic recovery, the strongest on record, led to enormous further strain on the global supply system; surging demand, coupled with shortages of workers, ships, containers, air cargo space and clogged ports, created a ‘perfect storm’. Supply chain bottlenecks are starting to weigh on the economic recovery, slowing growth and leading to delays, holding back the manufacturing sector and fuelling inflation.
The EU had recognised its strategic dependence on some foreign inputs even before the pandemic, and had started to seek ways to increase its autonomy – a quest which has been accelerated by the impact of the coronavirus. To improve the resilience of supply chains, the EU is applying a policy mix that aims to increase domestic capacity, diversify suppliers and support the multilateral rules-based trade environment; it has also enhanced its cooperation with the US on supply chains. Other like-minded countries apply a similar policy mix, focusing on supporting reshoring or nearshoring.
While this situation is not ideal, global supply chains are hard to reconfigure, and increasing their resilience is a time-consuming and costly process. Moreover, most experts predict that reshoring or nearshoring will be of limited importance. With time, though, resilience may improve through international cooperation, diversification and the accelerated uptake of digital technologies.
Read the complete briefing on ‘Resilience of global supply chains: Challenges and solutions‘ in the Think Tank pages of the European Parliament.
Listen to policy podcast ‘Resilience of global supply chains: Challenges and solutions‘ on YouTube.