Can the West really decouple from China?

Western economies are pursuing a strategic goal of decreasing economic reliance on China, a move that has gained momentum over the past decade. This strategy emphasizes supply-chain resilience, industrial sovereignty, technological leadership, and national security. The COVID-19 pandemic exposed vulnerabilities in global supply networks, while escalating geopolitical tensions, export restrictions, and technological rivalries have further bolstered political support for reshoring and "friendshoring" manufacturing.

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The objective is understandable. The difficulty lies in its execution.

However, the practical execution of this objective presents significant challenges. Analysis by consultancy EY-Parthenon suggests that substantially reducing Western dependence on China necessitates investments on a scale not seen since post-war reconstruction periods. The United States, the European Union, and the United Kingdom would collectively require approximately $23.6 trillion in additional investment over the next 25 years.

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the United States, the European Union and the United Kingdom would collectively need around US$23.6 trillion in additional investment over the next 25 years to rebuild manufacturing capacity, industrial infrastructure, research capabilities, software ecosystems, logistics networks and supply chains.

These substantial funds are earmarked for rebuilding manufacturing capacity, industrial infrastructure, research capabilities, software ecosystems, logistics networks, and supply chains. Specifically, EY-Parthenon estimates the United States would need around $13.7 trillion, the European Union $9.1 trillion, and the United Kingdom $800 billion by 2050. These figures represent investments needed to achieve governments' aims of re-establishing many industrial capabilities currently centralized in China within their own borders, supplementing existing expenditures rather than replacing them.

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These estimates need not be necessarily seen as forecasts of these investments not happening. Instead, they indicate how much investment would be needed if governments truly aim to rebuild many of the industrial capabilities centralised in China within their own borders.