Executive Summary

The global economic landscape is rapidly transforming, shifting away from deep globalization towards an environment heavily influenced by geopolitical and geo-economic factors. This new era is characterized by escalating geopolitical tensions and a rising apprehension regarding the dense economic dependencies forged through international trade and value chains.

Geo-economics – the use of economic instruments like tariffs, subsidies, and restrictions to achieve foreign policy goals – is becoming pervasive, often subtly integrated into regular economic activities. This proliferation of trade barriers and national industrial state support by large countries poses a significant challenge to the small, open Nordic countries. For these nations, international trade is exceptionally vital for overcoming limited domestic market size, enabling specialization, and achieving essential economies of scale. Therefore, assessing the state of Nordic value chains is critical.

Nordic reliance on intermediate goods

Nordic economies exhibit a fundamental and necessary reliance on the imports of intermediate goods, such as raw materials and components, which is economically effective given that small countries cannot produce all required inputs domestically. These imports account for a substantial portion of the region's total goods imports. Finland shows the highest dependency on these intermediate goods, while Denmark and Iceland record the lowest regional reliance.

The supply structure of these inputs is overwhelmingly Europe-centric, built on deep regional integration. Major global powers such as the US and China, however, play a role in supplying necessary intermediate inputs.

Imports are often concentrated in specific products that reflect national industrial needs; for example, energy-related products like crude petroleum oils are dominant imports for Denmark, Finland, and Sweden. The high reliance on established European supply corridors demands continuous scrutiny to assure their stability and resilience. The choice of sourcing regions and countries rests ultimately with individual companies.

Assessing vulnerabilities in imports

To pinpoint specific supply chain risks, a precise methodology was used, classifying imports as vulnerable only if they simultaneously meet three challenging criteria: high sourcing concentration, significant dependence on non-European supply, and low potential for domestic substitution.

Our vulnerability analysis reveals significant disparities across the Nordic region. Norway and Denmark face the highest exposure, while Sweden and Iceland demonstrate remarkably low vulnerability shares, suggesting more resilient sourcing patterns. A key finding across the region is that the most critical supply chain risks – the vulnerable inputs – overwhelmingly originate from outside Europe, signaling that the risks are inherently geopolitical.

The specific origin of these vulnerabilities varies by country. The US is the overwhelmingly dominant source of vulnerable goods for Denmark and Sweden, indicating critical reliance on US supply chains for sensitive inputs. Conversely, China is the primary source of vulnerable goods for Finland and Iceland. Norway exhibits the most globally dispersed risk profile, relying heavily on the rest of the world and other BRIC regions for its vulnerable inputs.

Vulnerability is highly concentrated in a small selection of products; for instance, petroleum products constitute a major majority of Denmark's vulnerable imports, while lithium-ion accumulators are the largest share for Finland.

Strategic importance of critical raw materials

Critical raw materials (CRMs) are strategically vital for sectors driving the green and digital transitions, as well as for defense. Finland and Norway show the greatest reliance on CRMs relative to their total intermediate imports.

CRM sourcing reveals specific concentration patterns: Iceland sources most of its CRMs from China, while Norway relies overwhelmingly on the Rest of the World. For Denmark, Norway, and Sweden, strong European supply chains secure the majority of their CRMs.

Our analysis is limited to the direct importation of unprocessed CRMs. This means we do not factor in critical raw materials when they are imported as part of more complex components, refined parts, or other intermediate products.

Destinations of goods’ exports

Exports are fundamental for Nordic economic growth and specialization, but this open model is increasingly threatened by rising geo-economics and protectionism, including significant tariff increases originating in the United States. Europe remains the main destination for the majority of Nordic goods exports. However, Denmark is exceptional, directing a substantial portion of its exports to extra-European regions. The importance of the US market varies considerably, being most crucial for Iceland and least significant for Norway.

Large companies (with at least 250 employees) are the dominant importers of intermediate goods and the primary drivers of goods exports across the region, particularly in Sweden and Finland. Conversely, smaller companies contribute proportionally much more to the total exports of Iceland and Norway than they do in Finland and Sweden.

Policy considerations and implications

The findings have several implications for policymakers and businesses in the Nordic region.

First, the reliance on external, extra-Nordic imports is a shared aspect that call for a coordinated response. Since the average intra-Nordic trade of intermediate goods is 21%, the possibility and appropriateness of increasing this share to improve the resilience of the Nordic industries should be discussed. Are there already national measures in place to improve the conditions for promoting Nordic trade of intermediate goods which could be copied and implemented at the Nordic level? And are such measures aligned with EU regulation?

Second, in contrast to the import pattern of intermediate goods, we can identify huge differences in the import pattern of vulnerable goods across the Nordic countries. The identified differences in sourcing regions of vulnerable goods – the US for Denmark and Sweden versus China for Finland and Iceland – mean that a one-size-fits-all strategy for mitigating risk is not feasible. Policymakers in these countries must tailor their resilience strategies in relation to their specific dependencies.

The Swedish economy seems more resilient and less vulnerable than the other Nordics as only 2% of Swedish import of intermediate goods can be characterized as vulnerable – compared to 15% of the Norwegian import. What are the reasons for these differences and are there possible lessons to be learned?

Third, as the current critical geopolitical situation probably will continue and could even worsen, there is a need for continuous and systematic monitoring of the complexity of global value chains and their impact in Nordic economies. Development of monitoring methods and tools in Nordic countries/common Nordic level are needed in order to assess the development of vulnerabilities and secure economic and security-related stability.

Fourth, the Top 5 vulnerable products are different across countries, suggesting that no common pattern was found. The high concentration of vulnerable products in a few key categories presents both a challenge and an opportunity. The challenge is that a disruption to just one or two of these product lines could have a cascading effect on the entire economy. The opportunity, however, is that a targeted approach can be highly effective.

Fifth, other Nordic countries are quite important export destinations for each Nordic country. Policymakers could actively seek to deepen intra-Nordic trade relations.

A more integrated Nordic market could act as a buffer against external shocks and leverage the collective economic strength of the region. In addition to Nordic region, for small countries it is important to find also bigger markets from larger economies. Furthermore, more diversified exports and export markets can also improve export resilience. Could such diversification be supported not only by national marketing initiatives but also for joint Nordic initiatives?

Finally, it is companies that engage in international trade, not countries. This fact makes it difficult to devise policy measures that could resolve problems concerning import or export vulnerabilities. Despite this challenge, we believe it is important to identify in advance bottlenecks that could cause major issues in this era of greater geopolitical tensions than we have seen in decades.