Countries in Europe and the US will have to invest an additional 23.6 trillion. USD over 25 years to get rid of their economic dependence on China. At the same time, the process of decoupling itself could lead to an increase in inflation of up to 2.5% in certain sectors, commented EY-Parthenon, a division of the consulting and auditing company EY.
Experts analyzed the costs of building new production and logistics chains, processing facilities, research centers and software replacement of Chinese companies. The US will require investments of 13.7 trillion. USD for these purposes, the eurozone countries will have to invest 9.1 trillion. USD, and for the UK, such a policy would cost USD 800 billion.
The US government and private companies would have to invest around USD 550 billion per year, which roughly corresponds to the USD 600 billion that American technology corporations allocated to build data storage and processing centers in 2025. The EU would have to almost double its annual budget.
The huge investment underlines the scale of the challenge that Western countries will have to deal with if they decide to radically reduce their dependence on the Chinese economy. “Localizing supply chains without passing on prohibitive costs to taxpayers and consumers will be one of the biggest challenges for businesses and governments in the coming years“, said EY-Parthenon analyst Mats Persson.
At the same time, the authors of the report believe that the total annual investment of 940 billion USD is theoretically not “unaffordable”, but this will be additional costs outside of existing investment plans, including in infrastructure and defense. Since sales prices in China are 20-100% lower than in the West, decoupling from the Chinese economy will lead to an increase in prices and the base rate. Thus, in Europe, in certain sectors of the economy, prices may increase by 1-2.5%.
According to Natixis bank analyst Alicia Garcia-Herrero, a complete reduction in the dependence of Western economies on China is impossible in the short term. “The issue is not just how much it will cost, but that China could intervene [in this process] to stop such a withdrawal through existing mechanisms to control the supply of everything from rare earth metals to pharmaceuticals,“ she said.