The cost of replicating China-linked supply chains across the US, UK and Eurozone could reach approximately $23.6 trillion by 2050, according to new EY-Parthenon analysis.
The research highlights the scale of investment required to localise supply chains as organisations seek to mitigate geopolitical risk, and the trade-offs for businesses and governments.
This challenge is particularly visible in East-West supply chains. EY-Parthenon estimates that duplicating these supply chains would require $13.7 trillion in the US, $9.1 trillion in the Eurozone and $800 billion in the UK. This would be to rebuild not only physical infrastructure, but also critical capabilities from advanced manufacturing to supplier ecosystems.
Sectors most reliant on Chinese inputs will be the most exposed. Manufacturing, mining, and power and utilities account for almost $13tn of the $23.6tn in required investment.
Decoupling, as with any major economic transition, would require a phased build-up of investment over time. In its early stages, capital requirements are likely to be relatively contained. It will allow for a targeted focus on the most exposed sectors, value chains and critical nodes. However, as the transition progresses, the scale of investment needed to achieve full decoupling would increase materially.
The analysis raises important questions about how these costs will be absorbed. If governments fund the transition, deficits in the US, UK and Eurozone could increase by close to 1 percentage point of GDP annually through 2050. If shouldered by businesses, companies in sectors such as machinery, electronics and automotive could face a sharp increase in capital expenditure. In some cases it will be up to twice the current levels.
Geopolitical risk reshapes global trade and supply chain strategy
The findings underscore a growing tension at the heart of modern globalisation. While geopolitics and policy push businesses toward more localised operations, economic pressures and innovation continue to pull them toward global scale.
Over the past two decades, global trade integration accelerated rapidly. Indirect exports more than tripling to around $11 trillion annually, driven in part by China’s entry into the World Trade Organization. However, today that model is under increasing strain as geopolitical turbulence has a greater impact on business performance.
The introduction of US trade tariffs and ongoing disruptions in the Strait of Hormuz, has forced companies to reassess assumptions around energy flows, freight availability, inflation expectations and business continuity.
Mats Persson, EY-Parthenon UK Macro and Geostrategy Leader said, “Geopolitics and economics are pulling in opposite directions, driving a more fragmented form of globalisation in which economic nationalism co-exists with continued trade.
“Western economies are already managing capital‑intensive transitions across energy, technology, defence and infrastructure by adding full East‑West supply chain decoupling without clarity on who bears the cost risks proving unaffordable. A more realistic outcome is partial decoupling, requiring a more agile response from businesses.
“However, many businesses have not yet adjusted to this new reality. They are either investing too heavily in localisation where it is not required or continuing to rely on low-cost supply chains that lack resilience. Businesses need a clear understanding of macro risks. They need a disciplined, case-by-case approach to deciding which operations should be localised and which should remain global. That approach must be underpinned by robust scenario planning and the flexibility to adapt as conditions evolve.”
Rising costs and inflation pressures limit large-scale localisation
Beyond initial capital investment, the report highlights the ongoing cost pressures associated with large-scale localisation. Chinese manufacturers retain a significant cost advantage. Factory prices for certain components estimated to be 20% to 100% lower. As a result, even partial shifts away from established global networks could contribute to structurally higher inflation.
Mats Persson added, “These cost dynamics underline why a full-scale shift away from global supply chains is unlikely. Even partial decoupling risks locking in structurally higher prices, leaving consumers and taxpayers to absorb the trade‑offs. Businesses should instead prepare for a more uneven transition, where the balance between local and global varies by sector. They should be building flexibility to preserve cost advantages where they matter, while strengthening resilience where it is most critical.”
