Geoeconomics

Since the outbreak of the Covid-19 pandemic, the configuration of international supply chains has received increased public attention. Pandemic-related disruptions in production and transportation have led to questions about the reliability of international production networks. Moreover, the war in Ukraine and the associated sanctions against Russia have cast a new light on the geopolitical significance of economic interdependencies with autocratic regimes. How do firms react to these developments, and have they already adjusted their sourcing strategies? In this policy brief, we present the results from a representative survey of more than 4,000 firms in Germany, providing insights into how companies have responded to supply chain disruptions and which priorities they are setting for the future.

The Ukraine war and geopolitical tensions pose major challenges for supply chains. Whereas shortages of microchips became a symbol of supply chain disruptions during Covid-19, a survey from June 2022 from the ifo Institute shows that over 74% of German manufacturing firms report production disruptions due to shortages of different types of inputs and raw materials. The production of key technologies that are necessary, for instance for the energy transition, often depends on imported raw materials. Therefore, it is important to evaluate Germany’s raw material dependencies at the product level to identify the risk of future supply chain disruptions. This paper identifies nine critical raw materials, which have a high degree of supplier concentration and are used in more than half of the key technologies. For these raw materials, we provide a detailed analysis on Germany’s dependency on imports.

This paper conducts an in-depth analysis of the National Recovery and Resilience Plans (NRRPs) of Austria, Belgium, and Germany. Exploiting a detailed database that covers all the investments and reforms included in the NRRPs and building on insights from semi-structured expert interviews, we study their alignment with EU objectives, the additionality of the spending, and the cross-border effects. We find that all three NRRPs are well aligned with the objectives defined in the RRF Regulation but differ greatly in terms of additionality. Cross-border projects are only of limited importance. We finally highlight some missed opportunities for other cross-border projects.

In recent decades, China has risen to become Germany’s most important trading partner for international trade in goods. Has Germany become too dependent from trade with China? An analysis using direct and indirect value-added linkages along the supply chain shows that China plays an important, but by no means dominant role for Germany as a supplier or destination market. However, in a survey conducted by the ifo Institute, 46% of German firms in the manufacturing sector state that they currently depend on important intermediate inputs from China. Of those, almost half of the firms are planning to reduce imports from China in the future. The most frequently mentioned reasons for reducing imports from China are the desire to decrease dependencies and increase diversification, increased freight costs and disruptions in transportation, as well as political uncertainty. An analysis at the product level shows that the German economy depends on several critical industrial goods and raw materials from China.