CBS World Café X - Evaluating supply chain dependencies

In recent decades, production processes have increasingly become sliced-up and production stages are located where this is most cost-efficient. These international production chains are characterized by companies that import raw materials and semi-finished products, add value by processing these products and sell these processed products as semi-finished products or as end products, often as exports. More than two-thirds of world trade now consists of so-called intermediate goods such as raw materials and semi-finished products that are intended for further processing. Global value chains have become increasingly longer and more complex, with production stages that are dispersed across different locations and often across different countries.

But in recent years the increase in international production fragmentation has come to a standstill. Global value chains have been under pressure due to the trade war between the United States and China, the corona pandemic and geopolitical shocks such as the Russian invasion of Ukraine. In the academic literature there is already a discussion about an impending major 'reallocation' of global value chains. In policy discussions today, the emphasis is on strategic dependencies and strategic autonomy of the Netherlands and the EU as a whole. There is a desire to reduce risky strategic dependencies in which 'reliable value chains' are crucial.

Policy makers would like to have a clear overview of the risks in supply chains at a detailed product-country level. Traditional import of goods statistics provide a ‘face-value’ measure of dependencies at the product level, but tell only part of the story because they only provide an indication of the direct dependencies of certain products from certain countries. The trade flows that precede these direct import dependencies are not measured.

A fictional example would be a lithium battery imported by a Dutch automotive manufacturer from Germany that contains lithium which is not mined in Germany but elsewhere, for example in Chile. In our example there is a dependency on the critical raw material lithium mined in Chile, but this is not detected by traditional import statistics. Global input-output data allows to identify such hidden exposures. However, this data is highly aggregated and indirect dependencies can only be identified at the industry level, rather than at the product level. In our fictional example the Dutch automotive industry is indirectly dependent on the Chilean mining and quarrying industry.

However, policy makers are looking for the ‘hidden exposure’ of certain products, rather than industries. Our two speakers of today have independently developed novel methods to identify these indirect import dependencies at the product-level.
During this CBS World Café, insights from ongoing research have been presented by:

• Antoine Berthou is Senior Economist at the Organisation for Economic Cooperation and Development (OECD). He will present a new OECD working paper on “Granular production networks: Mapping and testing product-level vulnerabilities” (joint work with Antton Haramboure and Lea Samek). This paper conducts an in-depth mapping of global value chain (GVC) vulnerabilities using product-level trade data matched with the Inter Country Input Output tables of the OECD. It provides new insights for policymakers and stakeholders in managing supply chain risks in a global economy subject to multiple risks.
• Oscar Lemmers is Senior Researcher at Statistics Netherlands (CBS). He will present new research on supply-chains of five Dutch industries (joint work with Khee Fung Wong, Tom Notten, Leen Prenen and Dennis Dahlmans). It concerns the commodities that are traded in these supply-chains and how they score on indicators that the literature relates with risks. This provided new insights for the Dutch Ministry of Economic Affairs and Climate Policy, who financed the study, on possible risks in critical supply chains.

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