Ending Western reliance on China requires $23.6 trillion in investment by 2050, study shows

Western efforts to reduce reliance on China across strategic supply chains could cost the US, the eurozone, and the UK more than $23 trillion over the next quarter-century, according to a study highlighting the immense economic challenge confronting Western policymakers.

Economic analysis indicates that European and US authorities and corporations will need to invest an additional $23.6 trillion over the next 25 years to successfully end their dependence on China in critical sectors such as manufacturing and technology.

The consultancy EY-Parthenon calculated that rebuilding infrastructure, research, software, manufacturing, and supply chains currently reliant on China will cost the US $13.7 trillion, the eurozone $9.1 trillion, and the UK $800 billion by 2050.

For the US, the required annual capital expenditure from the government and private sector to decouple from China is estimated at $550 billion. This sum is roughly equivalent to the $600 billion major US technology companies are projected to invest in data centers in 2025. For the EU, EY-Parthenon estimated that the necessary spending would require nearly doubling the bloc’s annual budget.

The scale of investment required to substitute Chinese resources and materials, on which advanced economies are currently dependent, underscores the formidable challenge Western governments face as they attempt to curb Beijing’s dominance in strategic supply chains.

“Localizing supply chains without creating unbearable costs for taxpayers and consumers will be one of the most difficult challenges confronting both companies and governments in the coming years,” said Mats Persson, a former UK Prime Minister’s adviser who is now a partner at EY-Parthenon.

EY-Parthenon analysts wrote that an average collective additional investment of $940 billion annually over 25 years was, in theory, “not insurmountable.” However, this expenditure would need to be made on top of existing investments in energy, technology, defense, and infrastructure. Persson noted that initial annual outlays would start lower but would escalate as the transition expanded.

The vulnerability of European and US economies to Chinese leverage was exposed last year when Beijing introduced export controls on critical rare earth metals in response to US President Donald Trump’s threat to impose a 145% tariff on Chinese imports.

Automotive production lines in both economies ground to a near-standstill before a truce was reached between Beijing and Washington. The disruption accelerated efforts by the US and Europe to de-risk their relations with China, which included an EU plan to stockpile rare earth elements.

According to assessments by the International Energy Agency, China is projected to supply more than 60% of the world’s refined lithium and cobalt—materials vital to the transition to cleaner energy sources—and approximately 80% of battery-grade graphite and rare earth elements until 2035.

Alicia García-Herrero, chief Asia-Pacific economist at the investment bank Natixis, said that Beijing’s tight grip on many critical industrial materials meant the West could not decouple from China in the short term, even with massive investment.

“It is not just a question of how much it will cost,” García-Herrero said. “It is also China’s capacity to intervene to block such decoupling, given its current control over supply in everything from rare earth processing to active pharmaceutical ingredients.”

According to the EY-Parthenon analysis, Chinese-made goods generally benefit from a factory-gate price advantage of between 20% and 100% compared to Western competitors. Consequently, reducing dependence on Chinese manufacturing is expected to drive up prices and increase inflation.

The EY-Parthenon report noted that Europe cutting its reliance on China could raise prices in critical sectors by 1% to 2.5%. Citing an analysis by the European Central Bank, the report warned this could cause inflation rates to remain permanently above the 2% targets set by the European Central Bank and the Bank of England.

According to the report, Western economies seeking a meaningful reduction in China dependence will need to invest heavily in factory and physical infrastructure, as well as workforce training and the automation of production processes.

Given the scale of the challenges, Persson said that “partial decoupling” was a more probable outcome. Under this scenario, companies would need to be selective about where they allocate resources to build resilience against potential bottlenecks controlled by China.