Supply chain tectonics : empirics on how the EU is plotting its path through global trade fragmentation

This paper investigates how the import relations of the European Union (EU) have recently shifted in an increasingly fragmented global trade environment. Using trade data at a highly disaggregated product level, we analyse the reallocation of EU import flows, examining its implications in terms of changes in import diversification levels and price dynamics. The timing of this analysis is important given the rising geopolitical uncertainties and the ongoing implementation of EU policies aimed at enhancing internal capacities and mitigating supply chain risks in critical supply chains. Our findings confirm that the EU's supply chains are not static entities but rather dynamic networks with a significant capacity for adaptation to the new global landscape. Despite sectoral differences, we observe a recent overall trend of EU imports shifting from countries without any bilateral trade initiative towards the EU, as well as towards neighbouring and distant partners in ongoing bilateral trade initiatives. We find that this leads to higher diversification in EU imports. However, for some products, this shift might initially focus on certain agreement partners, notably given that ramping up domestic capacity requires a period of adjustment. In addition, we show mixed evidence of associated upward pressure on prices in the short term. To conclude, this paper aims to highlight ongoing trends in EU imports, as well as some ongoing challenges related to balancing efficiency and resilience.