US Automobile Industry Faces High Sourcing Risk, Fed Study Finds

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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.

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.

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.

 

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