"Decoupling from China Impossible for the West… $940 Billion Annual Investment Needed"

An analysis suggests that Western nations, including the United States and those in Europe, would need to invest an additional $23.6 trillion (approximately 3 quadrillion 500 trillion won) over the next 25 years to reduce their reliance on China in key industries.

This amounts to an annual average of $940 billion (approximately 1 quadrillion 420 trillion won), a figure considered realistically difficult to manage.

According to the Financial Times (FT), a recent report by the consulting firm EY-Parthenon estimates that the U.S. would need to invest $13.7 trillion by 2050 to independently build the infrastructure, research, software, manufacturing, and supply chains it currently relies on China for.

The Eurozone is estimated to require $9.1 trillion, while the United Kingdom would need $800 billion.

For the U.S. government and corporations alone, an annual investment of $550 billion would be required to achieve decoupling from China.

This scale is comparable to the $600 billion that U.S. big tech companies invested in building AI data centers last year.

The investment required for the European Union (EU) is equivalent to about twice its annual budget.

Mats Persson, a former advisor to the British Prime Minister's Office who works at EY-Parthenon, stated, "Building an independent supply chain without placing an excessive cost burden on taxpayers and consumers will be one of the most difficult challenges for both Western companies and governments."

While such investments are not theoretically impossible, they are considered unrealistic given that these are additional costs on top of existing investments in energy, technology, defense, and infrastructure.

EY-Parthenon predicts that even if initial investment amounts are small, the required capital will increase as the scale grows in the future.

According to forecasts by the International Energy Agency (IEA), China is expected to account for more than 60% of the global supply of refined lithium and cobalt, and about 80% of battery-grade graphite and rare earth metals, which are essential for the clean energy transition, by 2035.

Alicia Garcia-Herrero, Chief Economist for Asia Pacific at the investment bank Natixis, said that even with massive investments from Western nations, achieving decoupling from China in the short term is difficult because China dominates key industries in various sectors.

"The problem is not just cost," she added. "China controls the entire supply chain, from rare earth processing to pharmaceutical ingredients, and has the ability to block Western nations if they attempt to shift their supply chains."

According to the EY-Parthenon analysis, Chinese products generally have a price competitiveness of 20% to 100% compared to Western competitors.

Therefore, reducing reliance on Chinese manufacturing will lead to rising prices.

In the case of Europe, reducing reliance on China is expected to cause a 1% to 2.5% increase in prices for key sectors.

Persson noted that since fully reducing reliance on China is too costly, a "partial decoupling" from China is more likely to occur in reality, adding, "Companies will need to carefully select potential chokepoints and direct their funding there."

(Photo: Screenshot from Chengdu Hi-Tech Semiconductor website, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.