Critical input disruptions – mapping out the road to EU resilience

We study how disruptions to the supply of foreign critical inputs (FCIs) might affect value added at different levels of aggregation. FCIs are inputs primarily sourced from extra-EU countries with highly concentrated supply, or consisting in advanced technology products, or which are key to the green transition. Using firm-level customs and balance sheet data for Belgium, Spain, France, Italy and Slovenia, our framework allows us to assess how much – and how differently – geoeconomic fragmentation might affect European economies. Our baseline calibration suggests that a 50% reduction in imports of FCIs from China and other countries with similar geopolitical orientations would result in sizeable losses of value added, with significant heterogeneity across firms, sectors, regions and countries, driven by the heterogeneous exposure of firms. Our findings show that the short-term costs of disruptions to the supply of FCIs can be substantial, especially if firms cannot easily switch away from these inputs. JEL Classification: F10, F14, F50, F60