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This page is mainly based on the paper Mejean and Rousseaux (2024), which is the third chapter of the Paris Report 2 by CEPR and Bruegel, titled Europe’s Economic Security, published in May 2024 and edited by Pisani-Ferry, J., B. Weder di Mauro, and J. Zettelmeyer. It also includes results from a contribution into EIB (European Investment Bank)'s Investment Report 2024/2025 (Chapter 5, Box C). This page therefore aims to explain the utility of statistical methodologies emplolyed to analyze and identify imported trade vulnerabilities and to describe the findings of our paper:
What are the imported trade vulnerabilities in Europe? How do they evolve over time? What are some examples of vulnerable products? What is their sectoral distribution?
Once these vulnerabilities are identified, not all products pose the same risks to the European economy. Mejean and Rousseaux (2024) cross these vulnerabilities with four non-exhaustive normative arguments. These include:
Products posing high geopolitical risks, such as tariff wars or the recent Ukrainian crisis.
Products with strong supply chain risks, affecting downstream industries in global value chains all the way to consumers (e.g., semiconductors).
Products posing critical risks, such as pharmaceuticals, particularly their active pharmaceutical ingredients (e.g., during the COVID crisis).
Products in emerging cutting-edge technologies, particularly in the green industry, where Europe must enhance its resilience. Here, we study identified vulnerabilities in these technologies and their markets to help shape Europe’s strategic responses.
I finally provide a detailed discussion of the public policies presented in our contribution to increase Europe's resilience.
Incoming, I also develop a refinement of the paper by breaking down our methodology at the country level within the European Union. This allows us to observe the types of vulnerable products imported by EU country and their evolution over time, shedding light on individual trends and identifying which countries drive European vulnerabilities upward.
MejeanRousseaux_ITCEI.pdfWhy should we pay attention to and quantify the EU’s imported trade dependencies?
Global value chains (GVCs) are complex networks that coordinate the production of goods from inception to consumer purchase, involving intricate links between buyers and suppliers across various stages. Over the last three decades, GVCs have undergone significant hyper-globalization, leading to highly dispersed geographical production. This fragmentation has increased trade gains for countries, firms, and consumers, offering risk-sharing properties against country-specific shocks (Backus et al., 1992; Antràs and Chor, 2021). However, this has also led to increased concentration of production within specific nodes, heightening exposure to local supply shocks, as disruptions in one node can affect downstream industries (di Giovanni et al., 2020; Bonadio et al., 2021; Boehm et al., 2019).
The risk from specific GVC nodes, heavily reliant on a few firms and countries, has sparked debates about “global trade dependencies”. The Covid-19 pandemic and the Russian invasion of Ukraine highlighted economies’ significant reliance on a few countries for pharmaceuticals and critical goods, stressing the need for strategic autonomy and supply chain resilience. Mejean and Rousseaux (2024) emphasize that identifying these vulnerabilities and isolating them according to their risks is crucial for designing effective resilience policies.
These policies aim to balance the benefits of GVC concentration and hyper-globalization against reduced risk exposure from trade dependencies, addressing risks like trade weaponization, critical goods shortages, supply chain disruptions, and reduced competitiveness. Recent resilience policies by the United States and the EU, such as the 2021 Executive Order on America’s Supply Chains and the European Chips Act, seek to mitigate risks from concentrated GVCs by promoting diversification or local production. Additionally, public intervention is necessary due to potential underinvestment in resilience by firms because of network and information externalities.
This issue of trade dependencies is also crucial in the current context of US tariffs on Europe. It is essential to identify our dependencies on the US to anticipate diversification strategies or support for local EU production (as discussed in the policy section at the bottom of the page). However, it is equally important to understand the methodology used, as it can be applied in reverse: what are the strategic dependencies of “adversary” countries on the EU? This knowledge is key to identifying potential trade response levers, especially in the current context.
The challenge of efficient resilience policies lies in correctly identifying vulnerabilities, isolating the risks addressed by resilience policies, and efficiently allocating insurance costs between private and societal actors, balancing enhanced resilience with traditional trade gains.
How can we identify and quantify these trade dependencies?
Several methodologies have emerged following the Covid-19 pandemic, including those by the French Treasury (Bonneau and Nakaa, 2020), the French Council of Economic Advisors (Jaravel and Mejean, 2021), the European Commission (2021), Mejean and Rousseaux (2024), and the CESifo (Baur and Flach, 2022) A review and discussion of these methodologies and their criteria (common or not) are available in Mejean and Rousseaux (2024) and in Vicard and Wibaux (2024).
The European Commission (EC) methodology identifies a product as vulnerable if it simultaneously meets criteria for import concentration, the significance of extra-EU imports, and the substitutability of these imports with domestic exports. In Mejean and Rousseaux (2024), we add to these criteria the potential for domestic and post-shock substitution, focusing on products mainly reliant on extra-EU imports to meet domestic demand (absorption) and with very low supplier substitution potential. These factors play a crucial role in resilience (Moll et al., 2023), and recent trade literature using natural experiments has provided empirical evidence of post-shock substitution patterns (Lafrogne-Joussier et al., 2023). Incorporating these substitution patterns in vulnerability analysis, as shown by MR, refines dependencies and changes their sectoral distribution. To compute our methodology we use product-level trade (CEPII-BACI) and production (Eurostat-PRODCOM) data at the HS6 2017 nomenclature.
Recap of the 5 criteria developed in Mejean and Rousseaux (2024) to identify vulnerable products:
European Commission’s three criteria:
1) Concentration of EU imports: Herfindahl-Hirschman Index (HHI) > 0.4
2) Importance of extra-EU imports in total EU demand: Ratio of extra-EU imports to total EU imports > 0.5
3) Substitutability of extra-EU imports by EU exports: Ratio of extra-EU imports to total EU exports > 1
Mejean and Rousseaux (2024)’s two additional criteria:
4) Low domestic (EU) production with respect to EU demand: Ratio of extra-EU imports to EU absorption (domestic production + EU imports - EU exports) > 0.5
5) Low substitutability potential between suppliers: Relationship stickiness (Martin et al., 2024) is in the top 25% of the HS6 product distribution.
More technical details on the five criteria can be found in Mejean and Rousseaux (2024) sections 2.1 to 2.3.
How many trade vulnerabilities are imported from the EU?
This figure sequentially shows how our additional criteria impact the set of vulnerabilities imported by the EU. Beginning with 5,381 products imported by the consolidated EU from 2015-2019 (we aggregate trade and production data to focus on persistent dependencies), the European Commission's three criteria (from its "bottom-up approach") identify 378 vulnerable products. Restricting the set to products for which 50% of domestic absorption is satisfied by extra-EU imports reduces it to 228 products. Finally, by considering ex-post substitutability in the event of a shock affecting these products, we identify 49 strategic dependencies after narrowing down to those (among the 228) with very low substitutability between suppliers. This last set of vulnerabilities accounts for 0.5% of the EU's total imports. These products are notably concentrated within the energy, mining, basic metals, and chemicals sectors. Additionally, the majority of these strategic dependencies are associated with products primarily sourced from China. See Mejean and Rousseaux (2024) for the full sectoral and geographical distribution (a list of products is also detailed in the paper).
Source: Mejean, I and P Rousseaux (2024), ‘Identifying European trade dependencies‘, in Pisani-Ferry, J, B Weder di Mauro and J Zettelmeyer (eds), Paris Report 2: Europe's Economic Security, CEPR Press, Paris & London. https://cepr.org/publications/books-and-reports/paris-report-2-europes-economic-security
Source: EIB Investment Report 2024/2025, Chapter 5, Box C (P. Rousseaux)
What about their evolution over a longer time frame?
By reproducing this analysis from 2002 to 2020 (as the production data used is not available up to 2022, contrariwise to trade data), we obtain the set of vulnerabilities identified by the intersection of the three criteria (EC methodology), then four criteria and all five crieteria of Mejean and Rousseaux (2024). This is what I did, dividing the period from 2002 to 2020 into four periods: pre-Global Financial Crisis (GFC) from 2002 to 2007, post-GFC from 2008 to 2013, a "Recovery" period from 2014 to 2019, and a Covid period from 2020 to 2022. This analysis relates to Box C of the fifth Chapter of the EIB (European Investment Bank) Investment Report 2024/2025. On the right, you can observe the evolution of vulnerable products imported by the EU27, categorized by methodology and over different periods. This chapter also examines the temporal evolution and methodological breakdown of the geographical and sectoral composition of these vulnerabilities. We can clearly observe a before-and-after effect surrounding the financial crisis, with a plateau emerging regardless of the methodology used. Vulnerabilities identified using our five-criteria methodology account for between 0.1% and 1% of the EU’s import volume, compared to a range of 2.9% to 5.4% with other methodologies. The so-called COVID period includes only the European Commission’s methodology due to a lack of production data required to apply our approach.
Source: EIB Investment Report 2024/2025, Chapter 5, Box C (P. Rousseaux)
Vulnerabilities tend to persist over time. While trade dependencies can change over time, 41% of dependencies identified before the global financial crisis persisted directly after the crisis, and 35% remained after that (after applying all five criteria). The COVID-19 pandemic marked a turning point in the number of dependencies, regardless of the methodology. While trade dependencies have increased over time, the difference between the products identified by the two methodologies remains relatively stable. Between 40% and 54% of the vulnerabilities identified have EU production that mainly satisfies domestic demand, and once criterion (iv) has been added, 77% to 80% can easily be substituted by using different suppliers. While acute vulnerabilities represent only a tiny fraction of total EU trade volumes (from 0.19% to 1.01% depending on the period and after applying all five criteria), these products pose significant risks to European value chains.
What is the nature of these products?
In Mejean and Rousseaux (2024), the products identified as vulnerable over the pooled 2015–2019 period for the consolidated EU include several critical goods sourced from highly concentrated markets. For example, alkaloids, which are used in morphine production, natural pesticides, and nicotine, are almost entirely imported from the United Kingdom (96% of EU imports), with a highly concentrated market (HHI: 0.92). Quebracho extract, a natural tannin essential for leather treatment, is sourced almost exclusively from Argentina (96% market share, HHI: 0.92). Other critical products include artificial flowers and plastic foliage for decoration, with 95% of imports coming from China (HHI: 0.90), and trichloroethylene, an industrial solvent, primarily supplied by the USA (90%, HHI: 0.82). Additionally, synthetic fiber tents and cases or containers (e.g., suitcases and toilet cases) are predominantly imported from China (80%, HHI: 0.65). Iodine, crucial for medical applications and water purification, is heavily dependent on Chile (73%, HHI: 0.56), while raw beryllium, a key material in satellite production, military applications, nuclear reactors, and weapon manufacturing, is primarily sourced from the USA (62%, HHI: 0.52). Lastly, bismuth, essential for semiconductors, ammunition, and cosmetics, sees 62% of its imports coming from China (HHI: 0.41).
From these examples, it becomes clear that some products are more critical than others in case of shocks. The consequences of shortages in fiber tents or plastic containers are far less severe than those of disruptions in the supply of beryllium or bismuth. It is therefore necessary to assign weights to these vulnerabilities based on the economic, geopolitical, and human consequences they impose on the EU. This is the focus of the next section.
Full list of vulnerabilities (for all criteria and methodologies) available upon request.
The vulnerable goods identified in Mejean and Rousseaux (2024) are, unsurprisingly, predominantly imported from China (regardless of the methodology used), followed by the United States and/or India. Sectorally, the inclusion of the two additional criteria - domestic production relative to demand and ex-post substitution - significantly alters the sectoral distribution of strategic dependencies compared to the methodology used by the European Commission. Specifically, 70% of the identified strategic dependencies are concentrated in the textile, construction, energy and mining, and health sectors. One notable finding is the substantial reduction in the number of vulnerable products within the agricultural sector, which drops from 42 to 13 products when applying the domestic absorption criterion. This decline aligns with the European Union’s historical emphasis on agricultural self-sufficiency, supported by the Common Agricultural Policy. The risk-sharing benefits of trade with non-EU suppliers also play a crucial role: in times of fluctuating domestic production, imports can help stabilize supply. Consequently, products with diversified domestic absorption—those combining both domestic and foreign sourcing—are less likely to be classified as vulnerable, even if they rely heavily on a single external supplier. As shown in Figure 2, the remaining vulnerable products are concentrated in sectors such as energy, mining, basic metals, and chemicals, highlighting their critical importance in the context of EU strategic dependencies.
Source: EIB Investment Report 2024/2025, Chapter 5, Box C (P. Rousseaux)
Using the NACE classification (European Commission), we spot that most vulnerabilities and risks are concentrated in the chemicals, ceramics and metals sectors. The imported products identified by the European Commission’s three criteria are mainly produced in manufacturing sectors, and nearly all appear when applying all five criteria (Figure C.4). When products with the lowest levels of substitution with EU production and between suppliers are isolated, the shares of the chemicals, ceramics and metals sectors are particularly high.
Read my Box C of Chapter 5 of the EIB Investment Report 2024/2025 !
EIBInvestmentReport_boxC_Chap5.pdfIt is clear that not all products hold the same strategic importance, depending on their sector and nature. For instance, supply chain disruptions affecting tents or artificial flowers are unlikely to have significant economic consequences, even though their imports are highly concentrated and domestic or ex-post substitution is almost nonexistent. However, the situation is quite different for products like beryllium or trichloroethylene, where such shocks could propagate downwards through entire value chains, affecting both businesses and consumers. This underscores the need to evaluate each product using multiple normative risk arguments relevant to the European economy. In Mejean and Rousseaux (2024), we conducted this exercise based on four key (non-exhaustive) normative risk dimensions:
1- Geopolitical risk
Geopolitical tensions have increasingly underscored the importance of assessing geopolitical risks in the resilience of global value chains (GVCs). Political instability, such as the US-China trade war in 2018, has become a significant source of disruption, imposing substantial economic costs on countries reliant on vulnerable trade nodes. These disruptions have justified actions like significant tariffs (e.g., >25% during the trade war) and other geopolitical measures, often using mechanisms such as geoeconomic coercion, “arming thy neighbor” strategies, and economic sovereignty initiatives (Thoening, 2023).
First, we find that between 2015 and 2019, 70-80% of the identified trade vulnerabilities were primarly sourced from non-NATO countries. Besides, using custom data linked to these non-NATO imported vulnerabilities, we document that 75% of French extra-EU importers traded with at least one non-NATO country, and 8% of these firms imported vulnerable products improted from these non-NATO countries (five criteria methodology). Besides, 83% who imported products from french firms imported from those who imported from non-NATO countries, and 53% of these EU importing frims imported five-crieria vulnerable products from french firms directly importing these products form non-NATO products.
Second, the Geopolitical Risk Index (GPR), developed by Caldara and Iacoviello (2022), quantifies geopolitical risks by systematically tracking geopolitical events, such as the Gulf War, 9/11, and Crimea in 2014, using major U.S. newspapers. By linking geopolitical risk to 23 non-NATO countries among the 44 covered by the GPR, we show that between 4 and 18 strategic dependencies imported from non-NATO countries exceed the median geopolitical risk level. Key examples include quebracho extract from Argentina (96% market share, HHI: 0.92), used in leather treatment; lithium carbonate from Chile (85%, HHI: 0.73), essential for battery production and green technologies; iodine from Chile (73%, HHI: 0.56), critical for medical uses and water purification; gloves of vulcanized rubber from Malaysia (63%, HHI: 0.42), important for industrial and medical applications; and refractory clay from Ukraine (55%), used in high-temperature industries. These findings highlight the EU’s heavy reliance on non-NATO countries for key products, many of which are concentrated in critical industries such as health, energy, and green technologies. This significant exposure underscores the need for diversification of suppliers and strategic risk mitigation measures to strengthen the EU’s economic resilience and sovereignty in the face of geopolitical instability.
Source: EIB Investment Report 2024/2025, Chapter 5, Box C (P. Rousseaux)
Trade dependencies are increasingly associated with Chinese exports. Against a backdrop of rising geopolitical tensions, the concentration of a large share of global production in China poses a significant risk. Political instability (such as the US-China trade war that started in 2018 or issues in the sourcing of cobalt in the Democratic Republic of the Congo) imposes heavy costs on reliant economies. The share of China in EU import vulnerabilities is rising, while the shares of the United States and the rest of the world have dropped by 3 to 10 percentage points (Figure C.3). Overall, China’s share is higher for products that are not readily produced in the European Union.
2- Supply chain risks
Shocks at any point in the supply chain can propagate downstream, as demonstrated by studies such as di Giovanni et al. (2020), Bonadio et al. (2021), and Boehm et al. (2019). These disruptions become particularly concerning when they jeopardize the competitiveness of domestic firms, as highlighted by Baur and Flach (2022). For the European Union, over 50% of its trade vulnerabilities with China involve final consumption goods. While this is noteworthy, it remains unclear whether such goods pose a significant threat to the EU’s strategic autonomy. Evaluating trade vulnerabilities requires a deeper understanding of their position within global value chains (GVCs).
To this end, it is essential to cross-reference strategic dependencies with both geopolitical risks and their “upstreamness” within GVCs. The upstreamness metric, introduced by Antras et al. (2012), measures the average number of production stages a product undergoes before reaching final consumers. By linking strategic dependencies to their end uses, categorized using the UN-BEC framework, we refine our understanding of their role in supply chains. Our analysis identifies 22 products situated more than three stages away from final consumers, classifying them as highly upstream in the GVC. These products pose substantial risks in the event of a supply shock, as their disruption would significantly impact importing industries and, consequently, downstream suppliers and consumers.
The most upstream vulnerable products are concentrated in the energy, mining, basic metals, and chemical sectors and are predominantly imported from China. Due to their critical role in GVCs, disruptions in the supply of these products could cascade across multiple downstream industries, amplifying the economic repercussions on EU firms and industries heavily reliant on them. This underscores the importance of assessing vulnerabilities not just in terms of immediate supply but also within the broader context of their strategic position in GVCs. Examples of products identified as highly upstream and vulnerable within global value chains include acyclic hydrocarbons, critical for polyethylene production and predominantly imported from the Russian Federation (70% market share, upstreamness score: 4.20). Similarly, trichloroethylene, an industrial solvent used in degreasing agents and refrigerants, is largely sourced from the United States (90%, upstreamness: 3.85), and quebracho extract, essential for leather treatment, comes almost exclusively from Argentina (96%, upstreamness: 3.85). Other notable examples include raw beryllium, used in satellite structures, nuclear reactors, and military applications, which is primarily imported from the United States (62%, upstreamness: 3.42), and magnesium (shavings, turnings, and granules), used in pyrotechnics, agriculture, and therapeutic applications, with China being the main supplier (91%, upstreamness: 3.40).
Source: EIB Investment Report 2024/2025, Chapter 5, Box C (P. Rousseaux)
Despite a slight decrease over time, these products represent 49% of the vulnerabilities identified by the five criteria (on average and across all periods).
3- Risk of shortages of critical goods
Shortages of critical goods extend beyond economic costs, often leading to severe non-economic consequences, including human losses. The trade-off between risks from low-probability events and the efficiency of productive systems is stark, with potential divergences between private and societal perspectives (Baldwin and Freeman, 2021). This dynamic highlights the need for public interventions to secure a consistent supply of essential goods. The issue is particularly acute in the pharmaceutical sector, where drug shortages have increased tenfold in the U.S. since the 2000s. These shortages are often linked causally to the outsourcing of manufacturing facilities to emerging economies (Galdin, 2023).
To better understand this vulnerability, active pharmaceutical ingredients (APIs) can be identified through trade data. Applying this methodology to EU imports, our analysis connects 170 HS6 product categories to 4,497 APIs. Two notable APIs—daprodustat (used to treat anemia in chronic kidney disease) and metharbital (used to treat epilepsy)—emerge as particularly critical. Both are primarily imported from India, with market shares exceeding 97% and extreme market concentration (HHI: 0.94). These products are identified based on our stringent 5-criteria framework, underscoring their strategic importance.
Beyond these, an additional 136 APIs were identified using only the absorption criterion in addition to the EC's criteria, revealing other dependencies. Examples include pregabalin (for epilepsy and anxiety), atrumustine (for reducing cholesterol and triglycerides), and bimatoprost (for glaucoma and ocular hypertension). These APIs, imported primarily from Singapore and the United States with market shares often above 70%, represent significant dependencies, though less severe than those flagged by the full framework. These findings emphasize the EU’s reliance on a narrow set of global suppliers for critical pharmaceutical inputs.
4- Risk to competitiveness in future key technologies for the EU (e.g., green technologies)
Strategic dependencies and vulnerabilities in global trade take on added importance when viewed through the lens of emerging green technologies essential for future competitiveness. Until now, assessments of trade dependencies have primarily focused on historical data, lacking a forward-looking perspective necessary to anticipate future risks. For the European Union (EU), securing inputs for critical technologies such as lithium-ion batteries, solar panels, and hydrogen-related products is pivotal to maintaining a competitive edge in the green transition. While none of the current trade vulnerabilities identified between 2015–2019 are direct inputs for these technologies, understanding the potential for diversification and supplier concentration is crucial.
Lithium-ion batteries, a cornerstone for electric vehicles (EVs), illustrate these challenges. For instance, global trade in lithium carbonate, an essential component, is highly concentrated, with Chile supplying 57% of exports and Argentina 16% (HHI: 0.367). Similarly, cobalt, another critical material, sees 88% of its ore and concentrate exports originating from the Democratic Republic of Congo (HHI: 0.778), a notable geopolitical risk. Despite this concentration, some upstream components such as lithium-ion batteries themselves exhibit lower concentration (HHI: 0.209), with China (41%) and Korea (15%) as leading exporters. Diversification opportunities exist, particularly through new suppliers like Canada (who implemented an attractiveness policy in 2022) and emerging technologies such as Northvolt’s NMC 811.
The solar panel market tells a similar story of high dependence on China. While the HHI for solar panels remains relatively low (0.216), with China supplying 43% and Malaysia 10%, many components are similarly dominated by Chinese exports. For example, mounted piezo-electric crystals, diodes, and transistors primarily originate from China and other Asian suppliers, underscoring the need for diversification in both technology and trade.
Hydrogen and rare-earth metals, critical for energy storage and advanced manufacturing, exhibit varying degrees of concentration. The hydrogen market is relatively competitive, with the Netherlands (38%) and Canada (33%) as key exporters (HHI: 0.264). Conversely, rare-earth metals reveal higher risks, with Vietnam (33%) and China (29%) as dominant exporters (HHI: 0.234). China’s overwhelming control of global reserves in rare-earth mining further compounds these vulnerabilities, particularly for graphite, where it accounts for nearly half of global exports in some forms, such as natural graphite powders (49%, HHI: 0.268).
These findings highlight the necessity for the EU to proactively address vulnerabilities in the supply chains for green technologies. By integrating insights on supplier concentration, geopolitical risks, and market stickiness, the EU can strategically diversify its trade structure to mitigate risks and secure its future competitiveness in the green economy.
Before delving into the policy tools to enhance the EU’s resilience, a quick recap of our paper?
Panel on Economic Sovereignty, CEPR Paris Symposium (11/12/2023); Beatrice Weder di Mauro, Chad Bown, Morgan Kelly, Isabelle Mejean, Moritz Schularick, Jeromin Zettelmeyer
What public policies to use to improve resilience ?
The next step in addressing trade vulnerabilities involves designing a robust policy toolbox to enhance resilience. The toolbox we develop in Mejean and Rousseaux (2024) incorporates various strategies, including subsidies, regulatory frameworks, and industrial policies, to mitigate risks and reduce dependency. Subsidies can target domestic production, R&D, or resilience investments at the firm level. Firms can enhance resilience through supply chain visibility, redundancy, agility, and vertical integration. However, such investments are often underfunded due to network and information externalities. Governments can address these challenges by subsidizing firm-level strategies to ensure supply chain robustness.
Information externalities, a critical issue in complex production networks, arise from firms’ limited visibility beyond direct suppliers. To counter this, the EU can leverage its extensive datasets to provide firms with granular insights into trade exposures. Real-time monitoring systems, such as France’s drug stock tracking initiative, exemplify how governments can enhance visibility in critical sectors. Such initiatives not only mitigate risks but also help forecast production capacities, especially in emerging industries. Coordination and standardization also play vital roles in reducing supply chain vulnerabilities. Harmonizing product designs, as seen in the US Sematech initiative for semiconductors, promotes compatibility across suppliers and reduces structural weaknesses. Standardized chip architectures, for instance, enable production across multiple facilities, enhancing flexibility and substitutability during disruptions.
Tax and subsidy frameworks further encourage agility, supplier relationships, and balanced bargaining power across supply chains. Subsidies for resilience are particularly important in upstream industries that supply multiple downstream sectors. In critical sectors, public investments in strategic reserves or domestic production capabilities are essential to ensure resilience. Strategic reserves for essentials like food, pharmaceuticals, and defense supplies mitigate risks of severe shortages. Investments must also anticipate future resilience needs, particularly in green technologies. Industrial policies to subsidize domestic production can reduce dependence on imports, improve diversification, and strengthen supply chain agility. For instance, Canada’s strategy for critical raw materials positions it as a low-risk supplier, while advances in battery technologies, such as NMC 811 and sodium-ion batteries, reduce reliance on concentrated markets for lithium and cobalt.
In the EU, coordinating resilience investments is vital to prevent subsidy wars and ensure balanced development. Industrial policy is a Member State competence, yet resilience investments benefit the entire EU, i.e. is a public good. A coordinated approach is necessary to balance strengthening existing industrial clusters with revitalizing deindustrialized regions. Such strategies promote structural transformation and competitiveness while addressing both current and future challenges. A comprehensive policy framework at the EU level, combining subsidies, data-driven insights, standardization, and coordinated investments, is essential to build resilience against trade vulnerabilities and enhance economic security.
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