Towards demystifying trade dependencies

Abstract

Supply chain disruptions, related to natural events or geopolitical tensions, have in recent years prompted policy makers to identify potential vulnerabilities related to critical trade dependencies. These are 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. Using three complementary methodologies — detailed trade data analysis, input-output data techniques, and computable general equilibrium (CGE) modelling — this paper examines the nature and evolution of trade dependencies between the OECD countries and major non-OECD economies (MNOE). It shows that global production has become increasingly concentrated at the product level, with China representing 15% of import dependencies in strategic products for OECD countries in 2020-21 compared to 4% in 1997-99. The methodologies used in this paper unanimously demonstrate a high degree of trade interdependency between OECD and MNOE countries. The current debate on “de-risking” international trade, therefore, needs to carefully consider the possible costs and benefits of different policy choices.

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