Replicating China-linked supply chains across the US and Europe could require US$23.6tn in public and private investment by 2050, according to new EY-Parthenon research on the toll of reducing dependence on the world’s largest exporter.
The consultancy estimated that duplicating China-West supply chains – including physical infrastructure, R&D, software, advanced manufacturing, transport networks, supplier ecosystems and workforce skills – would require US$13.7tn in the US, US$9.1tn in the Eurozone and US$800bn in the UK.
Manufacturing, mining, and power and utilities accounted for almost US$13tn of the total, making them the most exposed sectors to Chinese input dependency.
Reducing dependence on China for key imports such as semiconductors, batteries and critical minerals is a policy priority for the Trump administration, which often cites trade imbalances and national security concerns as it pushes for domestic production.
Meanwhile, the EU and the UK have taken a more cautious “de-risking” approach, favouring supplier diversification over full decoupling.
But the consultancy specialist has warned that the more extreme decoupling scenario would “require a phased build-up of investment over time” from both the public and private sectors, with costs “materially increasing as the transition progresses”.
Funding this long-term shift would carry high fiscal or corporate costs, the firm said – if governments footed the bill, deficits across the US, UK and Eurozone could rise by close to one percentage point of GDP annually through 2050, the research found.
On the other hand, should the burden fall on business, companies in machinery, electronics and automotive could see capital expenditure double from current levels.
Mats Persson, EY-Parthenon’s UK macro and geostrategy leader, said: “Western economies are already managing capital-intensive transitions across energy, technology, defence and infrastructure; adding full East-West supply chain decoupling without clarity on who bears the cost risks proving unaffordable.”
The EY-Parthenon report also comes as western firms continue to reassess China exposure amid tariff volatility and shipping disruption in the Strait of Hormuz.
However, Persson said many businesses had yet to adjust their strategies to this “new reality – either investing too heavily in localisation where it is not required or continuing to rely on low-cost supply chains that lack resilience”.
Beyond the initial capital investment required to reduce dependence on China’s exports, the report highlights the ongoing cost pressures associated with large-scale localisation.
Chinese manufacturers retained a factory-price advantage of 20% to 100% over Western competitors on certain components, EY-Parthenon said, meaning even partial reshoring could push long-term price levels up by one to two percentage points.
Persson said a full-scale shift away from global supply chains was unlikely, warning that “even partial decoupling risks locking in structurally higher prices, leaving consumers and taxpayers to absorb the trade-offs”.
He added a “more realistic outcome is partial decoupling”.
Recent research from Verisk Maplecroft confirms the supply diversification pool is widening – Vietnam, Malaysia, Mexico and Brazil have absorbed most of the shift so far, but Thailand and the Philippines in Southeast Asia, and Argentina and Chile in Latin America, are emerging as a “second wave” of options.
Mariano Machado, principal Americas analyst at Verisk Maplecroft, said these markets “do not offer simple interchangeable alternatives to today’s top connector economies”, but instead offer sector-specific advantages, with Thailand and the Philippines well-poised in autos, electronics, and precision manufacturing, and Argentina and Chile in critical minerals and agribusiness.
Analysis from Standard Chartered out this week also pointed to a “structural reconfiguration” of trade and energy flows as corporates diversify supply chains and build resilience through alternative corridors.
Trade flows were “redistributed rather than reduced, with growth shifting towards key trade and financial hubs including China, Singapore, Hong Kong and Switzerland, while Gulf-related corridors recorded the sharpest declines”, according to Samuel Mathew, global head of documentary trade, transaction banking at Standard Chartered.
China remains the largest single driver of documentary trade growth, recording the biggest absolute increases in documentary imports and exports on the back of resilient manufacturing and industrial demand, Mathew said.
