Supply chain structure and trade adjustment mechanisms in lithium trade: Evidence from prices, quantities, and sourcing channels

This paper examines how supply chain structure shapes adjustment in lithium trade, focusing on prices, import quantities, and sourcing patterns. The analysis evaluates whether lithium imports adjust to short-run market signals or are primarily constrained by existing supply chain structures. To address this question, the paper adopts a two-step empirical strategy. First, the paper employs a vector error correction model (VECM) to analyze aggregate lithium imports. This approach evaluates whether short-term movements in prices and exchange rates lead to quantity adjustments that restore long-run equilibrium relationships. Second, a structural gravity model is used to examine how adjustment operates in bilateral trade across countries, products, and supplier relationships. This framework allows the analysis to assess the role of supply chain concentration, dependence on specific supplier countries, and supplier-side institutional quality in shaping trade flows. The empirical results indicate that lithium imports exhibit limited responsiveness to short-term price and exchange rate shocks. Instead, trade flows are largely determined by structural factors, including technological necessity, persistence in established supplier relationships, and reliance on a small number of major suppliers. Gravity estimates further show that supply chain concentration and supplier institutional quality significantly affect trade volumes, with heterogeneous effects across lithium products and importing country groups. These findings imply that effective critical mineral policy should prioritize supply chain resilience and industrial security, taking into account product-specific characteristics, value chain stages, and supplier-side institutional risks.