EU supply chains in the era of trade fragmentation: Impacts, policies and current debate

Written by Marcin Szczepański.

A series of recent economic and geopolitical shocks have led to rising fragmentation of global trade, whereby countries tend to boost economic ties with those sharing similar political values, economic policies and security interests. While a broad retreat from globalisation is not taking place, there are some signs of reconfiguration of supply chains along geopolitical lines.

This is likely to have pronounced effects for EU economy due to its openness and high level of integration into global value chains. The full consequences are unclear at this point and firms’ responses vary, but mitigating the changing trade environment leads to heightened costs, stronger regional flows of goods and priority for measures that could reduce uncertainty.

The EU’s policy focus is on de-risking supply chains, boosting their resilience and creating opportunities through access to global markets. Increasing domestic production and access to inputs as well as diversifying supplies is coupled with supporting multilateralism and targeted partnerships. Many experts, as well as the European Parliament, see the unrealised potential of the single market, easier access to finance, stimulating innovation and digitalisation, as ways forward.

Managing global trade fragmentation is a complex process full of risks and opportunities, which requires crosscutting policy action and a strategic approach. The EU is striving to find a balance between trade openness and the necessary economic security measures. Furthermore, while proposed and launched solutions require a medium to long-term time horizon to deliver, geopolitical developments often happen swiftly, further complicating matters.

Read the complete briefing on ‘EU supply chains in the era of trade fragmentation: Impacts, policies and current debate‘ in the Think Tank pages of the European Parliament.