EY: "Decoupling from China to Cost $23 Trillion for US and Europe"

According to a new analysis, Western countries—including the United States and Europe—would need to invest an additional $23.6 trillion over the next 25 years to reduce their dependence on China.

AP Yonhap News

On July 12 (local time), the Financial Times reported that EY-Parthenon estimates it would cost the United States $13.7 trillion, the eurozone $9.1 trillion, and the United Kingdom $800 billion by 2050 to build alternative infrastructure, research, software, manufacturing facilities, and supply chains currently reliant on China.

To break free from dependence on China, it is estimated that the U.S. government and businesses would need to invest $550 billion annually. This is comparable in scale to the $600 billion that major U.S. tech companies are projected to spend on data centers in 2025. EY also analyzed that the European Union would need to nearly double its annual budget to meet the required expenditures.

EY concluded that, in theory, it is not an unmanageable burden for the West to invest an additional $940 billion annually on average for the next 25 years. However, this amount would need to be secured separately from the funds already allocated to energy, technology, defense, and infrastructure.

Mats Persson of EY stated, "Localizing supply chains without imposing unsustainable costs on taxpayers and consumers will be one of the most difficult challenges for both companies and governments in the coming years." He added that while annual spending may be relatively low in the initial stages, the required costs will gradually increase as the scale of supply chain restructuring expands.

Alicia Garcia Herrero, Chief Economist for Asia-Pacific at investment bank Natixis, noted that even with massive investments, it would be practically impossible for the West to decouple from China in the short term because China controls many key industrial materials.

She explained, "The issue is not merely about how much it costs," adding, "China already controls supplies ranging from rare earth processing to pharmaceutical ingredients and has the capacity to intervene to prevent decoupling."

Concerns about inflation may also intensify. Since Chinese products are highly price-competitive, reducing dependence could lead to increased price pressures. Citing analysis by the European Central Bank (ECB), EY projected that if Europe lowers its dependence on China, the prices of key industries could rise by 1% to 2.5%. As a result, inflation rates in the eurozone and the UK could consistently exceed the 2% targets set by the ECB and the Bank of England (BOE).

Persson suggested that, rather than aiming for complete decoupling from China, it would be more realistic to reduce dependence only in certain key areas. He also explained that companies should selectively invest in vulnerable points where China can control supplies, thereby enhancing supply chain resilience.

This content was produced with the assistance of AI translation services.