Efforts to reduce dependence on imports and strengthen home production across Europe could come with notable economic trade-offs, according to a summary from an ECB working paper reported by Kommersant. The study investigates how replacing imported inputs used in making export goods with locally sourced resources would unfold over the medium and longer term.
The authors describe a probable sequence of outcomes if Europe shifts away from imported inputs. Inflation could accelerate because locally sourced materials tend to carry higher costs, and productivity might slow if production conditions or supplier networks are less efficient. This combination could reduce the international competitiveness of European firms and shrink global trade volumes as partners adapt to new supply dynamics.
Economists from the ECB warn that choosing more expensive local resources in place of imports could lift prices for European-made products while eroding output efficiency. In addition, retaliation or policy responses from trading partners could further constrain global trade activity, creating a wider drag on growth.
Looking ahead, the quality and innovation of European products might come under pressure if domestic suppliers cannot consistently match the performance and scale of international competitors. The transition would involve significant upfront costs, and those costs could accumulate as inflation remains elevated and investment in new capacity ramps up.
As an alternative, the ECB staff suggests a careful limit on import substitution policies. They advocate applying this approach only to goods with clear vulnerabilities in supply and focusing on sectors where domestic capabilities already meet competitive benchmarks. This targeted stance aims to preserve supply resilience while avoiding distortions to price signals and global trade flows.
Recent assessments from ECB staff during the latest review indicate a cautious view of the broader import substitution strategy, reflecting concerns about potential negative effects on inflation, productivity, and international trade dynamics.
In contrast, there have been earlier policy pauses and discussions about maintaining stable policy rates to support price and financial stability during the transition, underscoring the ongoing balancing act between domestic resilience and external trade exposure.
Overall, the evidence points to a nuanced conclusion: a blanket push toward local sourcing may generate unintended costs, whereas a measured, capability-based approach to import substitution could help preserve competitiveness without sacrificing supply reliability. The key takeaway is that policy choices should be calibrated to real disruption risks and the ability of European industries to sustain competitive performance in a changing global environment, as highlighted in the ECB working paper and subsequent analyses by market observers and regulators.