US-China Decoupling Has Limits: Global Supply Chains Remain Entangled

The Peterson Institute's analysis challenges the prevailing narrative that the United States can rapidly and completely decouple its supply chains from China. While policymakers have pursued aggressive reshoring and friend-shoring strategies over the past three years, the research reveals deep structural constraints that make full decoupling economically unfeasible for most industries. China's dominance in critical inputs, from raw materials to intermediate components, remains difficult to replicate elsewhere, and alternative sources in Vietnam, India, Mexico, and Southeast Asia cannot quickly fill the capacity gap.

For supply chain professionals, this research signals a critical reality: the "China-free" supply chain remains largely aspirational rather than operational for most sectors. Companies pursuing aggressive decoupling strategies face higher costs, extended lead times, and reduced supplier flexibility. The analysis suggests that a hybrid approach, maintaining some China exposure while diversifying to secondary sources, may be more pragmatic and cost-effective than pursuing complete independence.

The implications are substantial. Organizations that have invested heavily in sole-source reshoring initiatives may face competitive disadvantages relative to peers adopting balanced, geographically diverse strategies. Supply chain teams should reassess their decoupling roadmaps, stress-test cost assumptions, and consider a more nuanced approach to regional diversification that acknowledges both geopolitical risk and economic reality.