A new analysis from EY-Parthenon estimates that the cost for the U.S., Eurozone, and UK to decouple from China could reach $23.6 trillion over the next 25 years. The U.S. alone would need to invest approximately $13.7 trillion to effectively reduce its reliance on China, according to the report. This investment would be necessary to enhance infrastructure, research and development, manufacturing, software, transportation networks, and workforce training.
Key Details
The report highlights that despite efforts to limit dependence on China, the U.S. still relies heavily on the country for various imports. In 2024, the U.S. received 14% of all Chinese exports, a decrease from 20% in 2017. Notably, 45% of U.S. smartphone and telephone equipment, valued at $51.5 billion, and 76% of toys, worth $14.4 billion, originated from China, according to United Nations Comtrade data. The analysis underscores the challenges of adopting a protectionist approach in an increasingly globalized economy.
Background
President Donald Trump has intensified efforts to limit U.S. reliance on China through tariffs, including a 10% import tax set to expire soon and additional levies ranging from 7.5% to 100% under Section 301. These tariffs target alleged unfair trade practices, such as forced labor. The report's findings serve as a stark reminder of the complexities involved in reducing dependence on a major trading partner. Mats Persson, EY-Parthenon UK macro and geostrategy leader, noted that the calculations reveal the difficulty of shifting toward a more localized manufacturing model.
The significant costs associated with decoupling from China could affect sectors heavily reliant on imports, such as technology and consumer goods. Investors may reassess the viability of domestic manufacturing initiatives and their potential impact on supply chains. Watch for upcoming trade policy announcements that may influence U.S.-China relations and economic strategies.