The US automobile industry faces some of the highest supply-chain risks, due to geopolitical factors and sourcing of electronic components like semiconductors, according to a new sourcing risk index from economists at the Federal Reserve.
(Bloomberg) — The US automobile industry faces some of the highest supply-chain risks, due to geopolitical factors and sourcing of electronic components like semiconductors, according to a new sourcing risk index from economists at the Federal Reserve.
The aerospace, light-truck and computer equipment industries are also vulnerable, according to researchers Andrea De Michelis and Mariano Somale, who quantified risks to US manufacturers based on their reliance on foreign suppliers.
“Industries with a higher share of imported inputs are more likely to experience production disruptions from shocks that limit their access to foreign inputs, such as disruptions to global transportation networks,” the pair wrote in a research note published on the Fed’s website on Friday.
The Sourcing Risk Index combines general exposure to foreign shocks like disruptions to transportation networks that roiled global supply chains during the Covid-19 pandemic, as well as geopolitical risks and geographical concentration of suppliers. The analysis is based on Bureau of Economic Analysis data, using 2019 as a benchmark year in order to address unusual consumption and production patterns induced by the pandemic.
“As some inputs can be critical and hard to substitute, we use the index to assess the risks that the sourcing of each intermediate input poses to each industry,” De Michelis and Somale said.
Semiconductors used by the automobile industry, for example, represent a small share of total production costs but a shortage of computer chips contributed to the severe production disruptions in 2021 and 2022 because they are so difficult to substitute, according to the authors.
“By focusing on the riskiest inputs, our measure identifies the automobile industry among those facing the highest sourcing risks, even though this industry sources inputs relatively safely on average,” they wrote.
Other industries, like furniture and apparel, have high sourcing risks based on their large dependence on inputs from China, but are less of a concern for national security, De Michelis and Somale wrote.
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Supply-chain challenges — including product shortages and shutdowns related to Covid-19 — as well as geopolitical issues like Russia’s war in Ukraine, have contributed to the worst inflation crisis in four decades.
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