According to a new government analysis, the Swiss economy’s supply chains are sufficiently diversified for most imported products. But the Federal Council identified 32 problem cases.
Imagine if every household had to produce all the goods it needed itself – clothes, plates, furniture, computers, washing machines and much more. That would not be a good thing. That is why trade, using specialization and mass production, is such a powerful generator of wealth. The same applies in principle from the perspective of municipalities, cantons and entire countries. Even the largest countries benefit greatly from international trade. This trade is even more important for smaller countries like Switzerland.
But fear of foreign dependence has increased worldwide in recent years. The main drivers were the pandemic, Russia’s war, China’s aggression and the associated fear of an increased bloc formation in the global economy (democracies versus dictatorships). Concern has also increased in Switzerland, which led to various initiatives in the federal parliament. One result of this is the report on Switzerland’s trade dependence published by the Federal Council on Wednesday. The focus is primarily on import dependence.
Diversification in the foreground
Striving for maximum domestic production in “important” industries would be extremely expensive for smaller economies like Switzerland and an illusion in many areas anyway. It would not necessarily make the country more resilient to crises either. Model estimates by the OECD in 2021 in the context of the corona pandemic suggested that economies with relatively weak international trade relations are less flexible and therefore more vulnerable in crises than strongly interconnected countries.
The focus of clever crisis prevention is not national isolation, but rather diversification in supply chains in order to avoid strong dependencies on individual suppliers and countries. The federal analysis of dependencies began with determining the concentration of imports in relation to the source country.
In line with an EU analysis on the same topic, the Federal Council set the threshold for a high import concentration at 0.4 based on the common concentration index HHI (Herfindahl-Hirschman Index). For example, if the total imports of a certain product came from only two countries (50 percent each), the index would be 0.5. With four countries at 25 percent each, the index would be 0.25. At the threshold of 0.4, there are typically two to three main suppliers.
Dependent on 195 goods
Even with a high index value, there is no dependency if replacement from within the country or from another country is possible in a crisis. If sufficient replacement is not likely to be possible, the federal government speaks of import dependency. The analysis based on trade statistics covered 5,300 goods and the period from 2001 to 2021.
The federal government identified around 230 goods with ongoing import dependencies for the last few years of the study period. After excluding small items with import volumes of less than 10,000 francs per year, there were still 195 products with medium to long-term dependencies. According to the report, import dependencies affect less than 2 percent of total goods imports; in the German economy, this figure was recently 2 to 3 percent.
In terms of value, around 60 percent of Swiss dependence in recent years has been on products from China; the largest individual items were laptops and watch cases. A further 15 percent was accounted for by Switzerland’s neighboring countries – especially Germany. In terms of sector, a good half of import dependence was in the machinery category. Other frequently identified product categories were plants (especially flowers), fruit and watches.
However, some import dependencies are not a special problem from a national perspective, as the Federal Council notes. This applies, for example, to tomato cans from Italy, tulip bulbs from the Netherlands, certain umbrellas from China and maple syrup from Canada. The Federal Council primarily sees dependencies as problematic that affect sovereign tasks in a crisis, such as national security, public health, the supply of vital goods (such as food and medicine) and the protection of critical infrastructure.
32 problem cases?
In its report, the Federal Council considers the import dependency for 32 goods to be “problematic”. 18 of these concern goods categories covered by the National Supply Act. For example, hazelnuts from Turkey, decaffeinated coffee from Spain, carob from Morocco, castor oil from India, ammonia from France and chemical substances from Belgium and Germany.
But the government has given the all-clear again. After examining the identified dependencies, the organization for national economic supply found that there was no need for action: “Even if the products fall into a category of essential goods such as cooking oils or animal feed, they are easily substitutable within the category.”
A further 14 identified products with potentially problematic dependencies concern potential inputs for critical infrastructure. For example, laptops and light-emitting diodes from China, outboard motors from Japan, flight combat simulators from the USA, stereo microscopes and cranes from Germany, steel profiles from Italy and fertilizers from France. The extent to which critical infrastructures are actually affected by the products mentioned should now be checked by the responsible authorities as part of the national strategy for the protection of critical infrastructures.
The analysis does not identify any particularly strong dependencies on politically “particularly prominent” products such as semiconductors, solar cells and lithium batteries. A special analysis of rare earth metals is expected to be carried out at the end of the year due to a parliamentary mandate. On the export side, the federal government has not identified any significant dependencies in general.
The companies know better
“Dealing with trade dependencies is primarily a task for the private sector,” emphasises the Federal Council. The companies concerned have far more precise information about their own supply chains than officials in Bern. The latest federal analysis cannot provide a complete picture either, as the government admits. For example, it is unclear to what extent the dependencies on individual countries are underestimated based on trade statistics because alternative supplier countries in turn source intermediate products from the same countries.
The crises of recent years have made many companies aware of the issue: According to a 2023 survey of 650 medium-sized and large companies from the industrial and financial sectors commissioned by the federal government, over 80 percent had reviewed their dependencies in the three previous years. Almost 60 percent took mitigation measures. The two most frequently mentioned measures concern diversification in the supply chain and increased inventory levels.