(Text by Observer Network, Liu Bai)
In recent years, the United States and Europe have been actively promoting so-called "risk reduction" in supply chains, attempting to reduce their dependence on Chinese industrial chains, and even pushing for partial "dealignment" from China in certain areas. Recently, a study has marked the cost of this "de-Sinoization" drama as almost astronomical: 23.6 trillion dollars.
More importantly, even with such a huge investment, it is almost impossible for Europe and America to become independent of China’s supply chain in the short term.
The British 'Financial Times' reported on July 13, citing a study by EY-Parthenon, that if the United States, the European Union, and the UK want to become independent of China's critical industries and supply chains by 2050, they will need an additional investment of $23.6 trillion over the next 25 years, with an average annual investment of about $940 billion. The study suggests that rebuilding the manufacturing systems, scientific research capabilities, and supply chain networks that currently rely on China is not only costly but also almost impossible to achieve in the short term.
According to estimates, the United States will need an additional $13.7 trillion over the next 25 years, the eurozone will need $9.1 trillion, and the UK will need about $800 billion. This funding will be primarily used to rebuild the manufacturing, scientific research, software development, infrastructure, and upstream and downstream supply chains that currently rely on China.
Calculated on an annual basis, the U.S. government and businesses need to invest approximately $550 billion each year. The Financial Times pointed out that this figure is almost equivalent to the $600 billion that large U.S. technology companies plan to invest in data center construction by 2025.
In contrast, the pressure faced by the EU is even more significant. The report states that if the same goals are pursued, the annual additional investment in the EU would be nearly double its annual budget.
March 24th, the National Museum of China held an exhibition showcasing the achievements of China’s manufacturing industry. Visitors viewed samples of rare earth luminescent materials displayed in the rare earth elements production section. IC Photo
Mats Persson, who was a consultant to the British Prime Minister's office and is currently a partner at Ernst & Young-Boostron, said that making supply chains local while not imposing excessive costs on taxpayers and consumers will become one of the 'most challenging challenges' faced by governments and businesses in the coming years.
Research suggests that an average annual investment of $940 billion over the next 25 years is not entirely unaffordable, but this funding must be based on continuous increases in energy transformation, technological research and development, defense construction, and infrastructure investment. As supply chain restructuring continues to advance, the required investment will further increase in the future.
The Financial Times states that in recent years, the United States and Europe have continuously hyped up so-called supply chain security risks, using this as a pretext to advocate for reducing dependence on China. In response to US trade bullying, China imposed legal controls on rare earth exports last year. The report says that this measure nearly caused the automotive industry supply chains in Europe and America to collapse. It was only after China and the US reached a temporary easing of tensions that the related crisis was alleviated.
The report suggests that this incident has further accelerated the implementation of so-called “risk-reducing” policies in Europe and America. For example, the European Union is currently promoting the establishment of strategic reserves for rare metals, with the aim of reducing the risks associated with the supply of key raw materials.
However, reality is far more complex than policy slogans.
According to predictions by the International Energy Agency (IEA), by 2035, China will still supply over 60% of the world's refined lithium and refined cobalt, as well as approximately 80% of battery-grade graphite and rare earth materials. These are essential raw materials that cannot be replaced for new energy vehicles, batteries, and energy transformation efforts.
French Trade Bank (Natixis) Asia-Pacific Chief Economist Alicia García-Herrero states that even if the US and Europe are willing to invest large sums, achieving "decoupling" from China in the short term is still highly unlikely.
She believes that the problem lies not only in the amount of money needed, but also in the fact that China currently controls a large number of key industrial chain segments, including rare earth processing and pharmaceutical active ingredients. China has a solid industrial foundation and supply capacity, which means that even if the West invests substantial amounts of money, it will be difficult to quickly establish a complete alternative system.
Besides investment costs, the report also pointed out that adjustments to the supply chain will in itself bring new economic burdens.
Since Chinese-made products usually have a manufacturing price advantage of 20% to 100% compared to European and American counterparts, once Europe and America shift to domestic manufacturing or purchase from other countries on a large scale, manufacturing costs will significantly increase, further driving up inflation.
The report predicts that in Europe, if there is a significant reduction in reliance on Chinese supply chains, the prices of products in key industries could increase by 1% to 2.5%. The report cites an analysis by the European Central Bank, which suggests that this could even make it difficult for the ECB and the Bank of England to achieve their inflation target of 2% over the long term.
The report also argues that building factories alone is not enough. If Europe and the United States truly want to reduce their dependence on the Chinese manufacturing system, they must simultaneously invest significant resources in training industrial workers, expanding their pool of technical talent, and promoting automation in manufacturing, in order to bridge the gap between labor costs and manufacturing efficiency.
Facing such high costs, Pellson believes that in the future, the West is more likely to adopt a strategy of 'partial decoupling' rather than complete decoupling.
He stated that companies will have to be more cautious in allocating their funds in the future. They should invest their limited resources in a few key areas where there are real supply chain risks, in order to enhance the resilience of their industrial chains. This is not meant to attempt to replicate the complete industrial system that China has already established.
The Financial Times believes that this research highlights a reality that is becoming increasingly unavoidable: In the context of ongoing discussions in the United States and Europe about eliminating risks in supply chains and reshaping industrial layouts, China’s well-developed industrial system, mature manufacturing capabilities, and significant scale advantages, which have been established over several decades, cannot be easily replicated with just massive investments. Even if the West invests trillions of dollars, establishing an industrial system that can replace China’s will still be a long and expensive process.
Foreign Ministry spokesman Mao Ning previously stated that an increasing number of European companies are choosing to deepen their presence in China and expand their business there. This in itself is the strongest response to the so-called 'risk reduction'. Sino-European economic and trade cooperation stems from common interests, and is essentially the result of complementary advantages and market competition working together. Complementary advantages are not risks, and the integration of interests is also not a threat.
Mao Ning pointed out that over the past 50 years, the annual trade volume between China and Europe has increased by more than 300 times, and bilateral investments have reached nearly 260 billion US dollars. This fully demonstrates the strong momentum and promising prospects of cooperation between China and Europe. Trade protectionism goes against economic laws and harms both parties. He hopes that the European side will view the economic and trade relations between China and Europe objectively and rationally. Together with China, they should reduce the list of issues and expand cooperation to achieve mutual benefit and win-win results.
