Why reducing reliance on China could cost the West $23.6 trillion
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Governments across the US and Europe have spent the past several years encouraging businesses to reduce their dependence on China. Geopolitical tensions, trade disputes, pandemic-related disruptions and concerns over critical minerals have all reinforced the case for stronger supply chain resilience. Turning that objective into reality, however, comes with a substantial financial commitment.
An EY-Parthenon analysis, reported by the Financial Times, estimates that replacing China’s role across manufacturing, research, technology and industrial supply chains could require approximately $23.6 trillion in investment over the next 25 years. The estimate illustrates how deeply China is embedded in the global economy and why many manufacturers now favor diversification over complete decoupling.
Why China became the world’s manufacturing backbone
China’s manufacturing strength extends well beyond labor costs. Over several decades, the country has built industrial ecosystems that combine suppliers, logistics providers, skilled workers, advanced manufacturing facilities and export infrastructure into highly integrated production networks.
These networks allow manufacturers to source components, assemble products and distribute goods efficiently. Replicating that model elsewhere requires more than constructing factories. It also demands investment in transport infrastructure, supplier networks, workforce development and supporting industries.
China also plays a leading role in processing the critical minerals needed for batteries, electric vehicles, renewable energy systems and advanced electronics. Analysts project that by 2035 the country will account for more than 60% of refined lithium and cobalt production while processing roughly 80% of battery-grade graphite and rare earth materials. Reproducing those capabilities elsewhere will take years of investment and technical development.
Manufacturing costs remain another competitive advantage. In many industries, Chinese factories continue to operate at costs estimated to be 20% to 100% lower than comparable facilities in Western economies. Scale, supplier concentration and operational efficiency continue to support that advantage.
Why diversification carries such a high price
The EY-Parthenon analysis estimates that the US would require approximately $13.7 trillion in investment to significantly reduce its dependence on China. The eurozone would require another $9.1 trillion, while the UK would need about $800 billion. Combined, that equates to average annual investment approaching $940 billion through 2050.
The required spending extends well beyond manufacturing facilities. Governments and businesses would need to finance ports, rail networks, power generation, semiconductor fabrication plants, mineral processing facilities, research centers and workforce training programs. Many industries would also need to establish entirely new supplier ecosystems before production could move at scale.
Consumers could also face higher prices. Analysts suggest that greater localization of supply chains may increase costs across several European industries as manufacturers absorb higher operating and production expenses.
These realities help explain the growing emphasis on “de-risking” rather than “decoupling.” The objective is not to eliminate trade with China but to reduce exposure in strategically important sectors while maintaining commercially viable relationships where appropriate.
Companies are choosing diversification over separation
Many multinational manufacturers have already begun adjusting their production footprints, although relatively few are exiting China entirely. Instead, businesses are adopting “China plus one” strategies by maintaining operations in China while expanding production into countries such as Vietnam, India, Mexico and parts of Eastern Europe.
This approach spreads geopolitical and operational risk while preserving access to China’s mature manufacturing ecosystem. It also gives companies greater flexibility when responding to tariffs, regional disruptions and changes in customer demand.
For industries including consumer electronics, automotive manufacturing and industrial equipment, diversification is proving to be a gradual transition rather than a rapid relocation. Supply chains built over decades cannot be replicated quickly without considerable investment and coordination.
China also continues to attract investment in advanced manufacturing, automation and emerging technologies. Its supplier base, logistics infrastructure and production capacity remain difficult to match even as other regions strengthen their industrial capabilities.
The direction of global manufacturing is likely to be shaped by broader geographic diversification rather than complete separation from China. Companies are building more resilient supply networks while recognizing that the world’s manufacturing system will remain interconnected for the foreseeable future. The financial estimates emerging today suggest that reducing dependence on a single production hub is possible, but only through sustained investment and long-term planning.
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