EU Supply Chains in the Era of Trade Fragmentation

This technical report discusses the impacts of rising trade fragmentation on EU supply chains, driven by recent economic and geopolitical shocks. It outlines how countries are increasingly forming economic ties based on shared political values and security interests, leading to a reconfiguration of supply chains. The report highlights that while globalization is not entirely retreating, there are signs of selective decoupling, particularly between the US and China, and the EU's dependence on certain critical goods from China is increasing. The EU's policy focus is on enhancing supply chain resilience and reducing risks through diversification and increased domestic production. The report also details the challenges posed by geopolitical tensions, such as the war in Ukraine, which complicate trade dynamics and may lead to significant economic costs, including higher import prices and reduced productivity. The findings underscore the need for strategic policy actions to navigate the complexities of global trade fragmentation and its implications for the EU economy.