West faces $23tn supply chain shift to cut China reliance

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West faces $23tn supply shift

Highlights

EY-Parthenon estimates duplicating China-linked infrastructure, manufacturing, and supply chains will cost the U.S. $13.7 trillion, Eurozone $9.1 trillion, and UK $800 billion over 25 years.
China is projected to supply over 60 per cent of global refined lithium and cobalt, and 80 per cent of battery-grade graphite and rare earths by 2035, posing critical material dependency risks.
European critical sectors could face 1 per cent to 2.5 per cent higher prices and sustained inflation above 2 per cent ECB and BoE targets due to China's 20–100 per cent factory price advantage.

Investment burden of strategic decoupling

As reported by Financial Times, the analysis from consultancy EY-Parthenon estimates that duplicating infrastructure, research, software, manufacturing and supply chains now tied to China would cost the U.S. $13.7 trillion, the Eurozone $9.1 trillion and the UK $800 billion over the next 25 years.

That implies average additional spending of about $940 billion a year, on top of existing commitments in energy, defence, technology and infrastructure. EY-Parthenon says the annual U.S. requirement of roughly $550 billion is close to the $600 billion invested by large U.S. technology groups in data centres in 2025, while the EU would need spending equivalent to nearly doubling its annual budget.

Mats Persson, a former Downing Street adviser now at EY-Parthenon, says localising supply chains without imposing prohibitive costs on taxpayers and consumers will be one of the biggest challenges for businesses and governments in the coming years. He adds that initial annual outlays would start lower but rise as the process expands, and argues that partial decoupling is more realistic than a full break.

Inflation risks and industrial constraints

The report frames the cost issue as only part of the problem, because China remains deeply embedded in the supply of critical materials needed for advanced manufacturing and cleaner energy systems. According to the International Energy Agency assessment cited in the article, China is projected to supply more than 60 per cent of the world's refined lithium and cobalt, and about 80 per cent of battery-grade graphite and rare earth elements by 2035.

The vulnerability of U.S. and European industry came into focus last year when Beijing imposed export controls on critical rare earth metals after tariff threats from U.S. President Donald Trump. Car production lines in both economies came close to stopping before Beijing and Washington agreed a truce, adding urgency to de-risking efforts including an EU stockpiling plan for rare earths.

Alicia García-Herrero, chief economist for Asia Pacific at Natixis, says the West cannot decouple quickly even with heavy investment because Beijing controls too many industrial inputs, from rare earth processing to active pharmaceutical ingredients. EY-Parthenon also finds that because Chinese-made goods often carry a 20 per cent to 100 per cent factory price advantage, reducing reliance on China would lift prices, with European critical sectors potentially seeing prices 1 per cent to 2.5 per cent higher and inflation staying above the 2 per cent targets of the European Central Bank and Bank of England.

The U.S. taking over the chairmanship of the FORGE coalition highlights Washington’s push to build more secure, diversified critical minerals supply chains with partner countries. Our earlier coverage noted that FORGE is intended to coordinate policy, public finance and diplomacy to accelerate high-impact projects in strategic resources that are increasingly tied to economic and national security.

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