EY-Parthenon Puts U.S. China Decoupling Cost at $13.7 Trillion as Inflation Could Rise 2%
Updated
Updated · Fortune · Jul 16
EY-Parthenon Puts U.S. China Decoupling Cost at $13.7 Trillion as Inflation Could Rise 2%
3 articles · Updated · Fortune · Jul 16
Summary
$13.7 trillion in extra U.S. investment over 25 years would be needed to replace China in highly exposed sectors, part of a $23.6 trillion bill for the U.S., eurozone and UK, EY-Parthenon estimated.
Chinese manufacturing scale makes full decoupling hard to execute: some component factory prices are 20% to 100% cheaper than in the West, and independent supply chains could lift structural inflation by 1% to 2%.
Trump has intensified the push with a 10% Section 122 import tax and Section 301 tariffs of 7.5% to 100%, but U.S. dependence remains deep in categories such as $51.5 billion of smartphone equipment and $14.4 billion of toys from China in 2024.
EY-Parthenon argues outright localization is unrealistic, though the U.S. is better placed than Europe because of deeper capital markets, dollar dominance and greater energy independence; Europe could need to double the EU budget if taxpayers funded the shift.
The report frames decoupling as part of a broader move toward a messier, more selective globalization shaped by AI competition, geopolitics and supply-chain vulnerabilities rather than a clean break from China.
As key tariffs are ruled unlawful, can the West escape China's orbit without triggering a permanent global inflation crisis?
With China controlling the world's critical minerals, is the West's multi-trillion dollar push for tech independence already doomed to fail?
Decoupling from China: The $13.7 Trillion Gamble Reshaping Global Trade and Power
Overview
Decoupling Western economies from China in critical industries is creating immediate economic challenges, with escalating costs and inflationary pressures. As governments and companies try to localize supply chains, initial spending may be manageable, but costs are expected to rise over time, leading to a long-term financial burden that affects economic stability and consumer purchasing power. This is made more difficult by the deep reliance on China for goods and critical materials, making the transition both complex and expensive. The process highlights the tough balance between national security goals and the economic impact on businesses and consumers.