There is currently no commonly agreed definition of trade dependencies nor an established approach to their measurement. The emerging literature suggests that trade dependencies can be defined as trade flows combining three characteristics: high risk of disruption; high economic (or other) importance; and constrained possibility of substitution. The OECD uses three complementary methodologies — detailed trade data analysis, input output data techniques, and computable general equilibrium (CGE) modelling — to identify trade flows falling under this definition and examines the nature and evolution of trade dependencies.
Supply chain interdependencies
Supply chain disruptions, including related to COVID-19, natural disasters events and geopolitical tensions, have in recent years prompted policy makers to identify potential vulnerabilities. Attention has been focused on critical trade dependencies ― those commercial links that could potentially impose significant economic or societal harm, be a source of coercion, a risk to national security, or disrupt strategic activities. That said, what is considered critical or ‘strategic’ is often country-specific, and it is difficult to distinguish critical trade dependencies that may be sources of concern from otherwise advantageous trade linkages. There is a risk that policy responses aimed at minimising trade risks and improving supply chain resilience may not be well designed and may unnecessarily undermine the benefits of international trade or have unwanted or unintended effects.
Key messages
The growth in concentration of supply and demand, and its clustering around some countries and regions, or products, suggest an increased potential for disruption of commercial links, causing economic or societal damage. However, the data shows also that large, if not dominant, portions of global and national trade are relatively well diversified. A number of countries have used international markets to diversify and reduce dependency, and there is untapped potential to diversify further. Given the difficulty of distinguishing concentrated trade links that could cause problems from advantageous trade linkages, it is important that policy responses aimed at minimising trade risks and improving supply chain resilience be well designed to avoid unnecessarily undermine the benefits of international trade.
The OECD is supporting government efforts to enhance supply chain resilience through its role as a convener and facilitator of dialogue across countries, and between the public and private sectors. In addition to the annual Supply Chain Interdependencies Network (SPIN) conferences for Chief Economists in Agriculture and Trade from OECD Members, the OECD has convened meetings on stress tests, on supply chains for medical goods. Most recently, the Forum on Critical Supply Chains looked across sectors at policies for ensuring resilience.
Context
Import dependencies have increased since the late 1990s, including in strategic products.
This reflects finer levels of specialisation in international supply chains which proliferated during this period. It is also consistent with the perception of an increase in vulnerabilities to unexpected shocks transmitted through international trade and supply chains.
The overall rise in national import concentrations has coincided with the growing share of China as a source of imports
This likely reflects both a growth in China’s productivity and innovation, which contribute to the attractiveness of China as a source of imports, but also the strategic economic policies, for example in the area of extraction and processing of critical raw materials.
