A new analysis from EY-Parthenon estimates that a full economic separation between the United States, Europe, and China would generate costs exceeding 14 trillion dollars over the coming decade. The figure, drawn from Fortune’s coverage of the report, highlights the massive economic stakes involved as policymakers on both sides of the Atlantic weigh further restrictions on trade with Beijing. The projection arrives at a moment when tariffs introduced during the Trump administration remain in place and new measures continue to surface, raising questions about whether partial disengagement can deliver security benefits without triggering widespread financial damage.
The EY-Parthenon study models several scenarios, ranging from targeted restrictions on specific technologies to a complete rupture in supply chains and investment flows. In the most extreme case, the combined gross domestic product losses for the US and Europe could reach 14 trillion dollars by 2035. That sum reflects not only direct reductions in trade volumes but also higher production costs, duplicated investments, and slower innovation cycles across multiple industries. The report underscores how deeply intertwined the three economies have become since China joined the World Trade Organization in 2001. Global value chains for electronics, pharmaceuticals, renewable energy components, and automotive parts now cross the Pacific and Atlantic repeatedly before a finished product reaches consumers.
Manufacturing stands out as one of the hardest-hit sectors. Many factories in the United States and Europe depend on Chinese suppliers for intermediate goods that range from specialty chemicals to machined components. Replacing those inputs with domestic or allied sources would require years of new capital expenditure and retraining of workers. The EY-Parthenon analysis suggests that near-term price increases for manufactured goods could range between 8 and 22 percent depending on the degree of separation. Such jumps would likely pass through to retail shelves, affecting household budgets and potentially fueling inflation that central banks have only recently brought under control.
Technology supply chains present another layer of complexity. Semiconductors illustrate the point clearly. While the United States has moved to restrict advanced chip exports to China and encouraged allies to adopt similar controls, the global industry still relies on Chinese factories for assembly, testing, and packaging of less sophisticated chips. Europe’s automotive and industrial machinery sectors use these components extensively. Any serious effort to reroute that portion of the supply chain would demand simultaneous expansion of facilities in Vietnam, India, Mexico, and Eastern Europe. The EY-Parthenon researchers calculate that the combined capital cost for such parallel infrastructure could top 2 trillion dollars, money that might otherwise support research or infrastructure projects at home.
Energy markets add further pressure. China dominates global production of solar panels, lithium-ion batteries, and rare earth minerals essential for wind turbines and electric vehicles. European governments have set ambitious climate targets that assume rapid deployment of these technologies. If tariffs and investment curbs slow Chinese exports, the cost of meeting net-zero goals could rise sharply. The Fortune article notes that EY-Parthenon’s modeling shows Europe facing an additional 1.2 trillion dollars in energy transition expenses under a full decoupling scenario. American clean-tech manufacturers might capture some of that market, yet scaling domestic production fast enough to offset Chinese capacity remains uncertain.
Financial linkages between the regions complicate matters even more. European pension funds and insurance companies hold substantial portfolios of Chinese equities and bonds. American venture capital firms have poured billions into Chinese startups, particularly in artificial intelligence and biotechnology. A sudden severance of these capital flows would trigger valuation losses and reduce funding available for innovation on all sides. The EY-Parthenon report estimates that global equity markets could see a 7 to 12 percent contraction in the first two years following a decisive break, with technology and materials sectors suffering the largest declines.
Policymakers in Washington and Brussels increasingly speak of “de-risking” rather than outright decoupling. The distinction matters. De-risking implies reducing dependence on Chinese suppliers in critical areas such as defense electronics, pharmaceuticals, and telecommunications infrastructure while maintaining trade in consumer goods and less sensitive industrial components. The European Union has introduced its own toolkit of measures, including carbon border adjustment mechanisms, foreign subsidy regulations, and export controls on dual-use technologies. These steps aim to protect strategic autonomy without closing markets entirely. Yet the line between de-risking and decoupling can blur quickly once tariffs accumulate and investment screening tightens.
The original Trump-era tariffs on Chinese goods, many of which the Biden administration retained, already altered trade patterns. Imports of certain consumer products shifted to Vietnam and Mexico, demonstrating that companies can adapt when given clear signals. However, the EY-Parthenon study warns that adaptation has limits. Products with complex production processes or those requiring specialized raw materials prove far harder to relocate. The report points to active pharmaceutical ingredients as a prime example. China supplies roughly 40 percent of the world’s generics and a significant share of the precursors needed for brand-name drugs. Any serious effort to onshore that capacity would require regulatory reform, environmental permitting, and skilled labor that Western economies currently lack in sufficient quantity.
Small and medium-sized enterprises face particular challenges. Larger multinational corporations possess the resources to redesign supply chains and absorb transition costs. Smaller suppliers often operate on thin margins and lack the capital to build redundant facilities. The Fortune piece quoting the EY-Parthenon analysis highlights that SMEs constitute the majority of businesses in both the United States and Europe. Their potential distress could translate into job losses that concentrate in specific regions, creating political pressure to slow or reverse decoupling policies.
China’s response adds another variable. Beijing has signaled its willingness to retaliate against new tariffs with its own restrictions on critical minerals, medical equipment, and market access for foreign firms. Such countermeasures could amplify losses on both sides. The EY-Parthenon model incorporates these feedback effects and still arrives at the 14 trillion dollar cumulative cost. That number assumes rational behavior from all parties; real-world escalation cycles might push the total higher.
Despite the sobering projections, complete economic isolation remains unlikely. Trade between the United States and China exceeded 500 billion dollars in 2025, while Europe’s commerce with China topped 800 billion euros. These flows support millions of jobs and generate tax revenue that funds public services. Governments therefore seek targeted measures rather than blanket prohibitions. The challenge lies in designing rules that achieve security objectives without inflicting collateral damage on unrelated industries.
Investment screening offers one avenue. Both the United States and the European Union have strengthened review processes for Chinese acquisitions in sensitive sectors. These reviews can block deals that threaten national security while allowing ordinary commercial transactions to proceed. Export controls on advanced machine tools, encryption software, and biotechnology equipment follow a similar logic. By focusing restrictions on narrow lists of technologies, authorities hope to slow China’s military modernization without disrupting broader economic exchange.
Yet technology diffusion proves difficult to contain. Knowledge travels through academic exchanges, open-source software, and talent migration. The EY-Parthenon report observes that even under strict controls, China’s domestic innovation capacity continues to expand. Beijing has poured resources into semiconductor research, electric vehicle development, and quantum computing. Over time, these investments may reduce China’s reliance on Western technology, thereby diminishing the leverage that decoupling strategies seek to maintain.
Public opinion on both sides of the Atlantic shows growing skepticism toward economic interdependence with China. Polls indicate concern about human rights, supply chain vulnerabilities exposed during the pandemic, and perceived unfair trade practices. These sentiments provide political cover for tougher policies. At the same time, businesses warn that abrupt changes could undermine competitiveness. European chemical companies, for instance, rely on Chinese markets for roughly 15 percent of their sales. Losing that outlet would force capacity reductions and potential plant closures.
The path forward likely involves a mix of continued trade, selective restrictions, and deliberate investment in alternative supply chains. Governments on both sides of the Atlantic have launched subsidy programs to encourage domestic production of semiconductors, batteries, and critical minerals. The US CHIPS Act and the European Chips Act represent initial steps, though analysts question whether the allocated funds suffice to achieve meaningful independence. EY-Parthenon’s modeling suggests that even with these initiatives, the US and Europe would still import substantial volumes from Asia through 2035.
Currency effects could also influence outcomes. A sustained reduction in US-China trade might weaken the renminbi, making Chinese exports cheaper and partially offsetting tariff impacts. Conversely, higher production costs in the West could strengthen the dollar and euro, complicating export competitiveness in third markets. Central banks would need to monitor these shifts closely to avoid unintended tightening of financial conditions.
Labor markets present additional considerations. Reshoring manufacturing could create new positions in the United States and Europe, particularly in engineering, logistics, and advanced production roles. However, the skills required often differ from those possessed by workers displaced by earlier globalization waves. Retraining programs will prove essential. The EY-Parthenon study estimates that up to 3 million workers across the US and EU might need to transition occupations under a moderate decoupling scenario, with associated education and support costs adding to the overall economic burden.
Geopolitical tensions influence the pace of these changes. Events in the Taiwan Strait or the South China Sea could accelerate decoupling regardless of economic analysis. Military planners in Washington and European capitals increasingly view economic interdependence as a vulnerability in potential conflict scenarios. This perspective pushes policy toward faster separation in defense-related industries even when commercial logic argues for caution.
Ultimately, the 14 trillion dollar figure serves as a reminder of the trade-offs involved. Security gains must be weighed against higher consumer prices, slower growth, and strained public finances. The EY-Parthenon analysis, as reported in Fortune, provides a quantitative framework for that debate. Whether governments opt for aggressive decoupling, measured de-risking, or some hybrid approach will shape global economic architecture for decades. The decisions made in coming years will determine if the substantial costs yield proportionate strategic benefits or simply transfer wealth from consumers and businesses to protected sectors without enhancing long-term resilience.
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