The EU hasn’t managed to de-risk its supply chain

De-risking, aimed at making EU supply chains more resilient to external shocks, has been a major policy objective in the wake of the pandemic and the new geopolitical realities. However, the EU hasn’t managed to reduce its supply-chain vulnerabilities, despite modest progress in some areas, while the direct impact of the Iran conflict on European inflation remains a key risk in the short term.

In this report, we assess the degree to which the EU has deployed the four main de-risking strategies – ‘nearshoring’ (moving supply chains to a close, or closer, location), ‘homeshoring’ (moving supply chains to the EU), ‘friendshoring’ (moving supply chains to countries that are political and economic allies), and the ‘China+1’ strategy (where firms diversify their supply chains by adding another country that isn’t China).

What you will learn:

• Despite the recent economic and geopolitical shocks, EU companies haven’t significantly changed their habits: over the past six years, the average distance that imports travel has increased by nearly 6%; EU companies have reduced their exposure to non-politically aligned countries only slightly and have increased their intra-EU trade by a similarly small degree; and their exposure to China has risen materially.
• Nearshoring: EU goods imports travel 114km more than in 2019.
• Homeshoring: Only a marginal increase in intra-EU imports.
• ‘Friendshoring’: The complexity of goods imported from the non-Western bloc has progressively risen.
• ‘China + 1’: Little evidence of the strategy being used. More sectors depend on Chinese imports than six years ago.