Uncertainty in US-China relations persists but the decoupling of the world’s two largest economies is «neither possible nor desirable», according to a Morgan Stanley research report.
Supply chain-related issues are dominating headlines with increasing calls from the West to diversify away from China to other countries such as India or Mexico. For businesses, this may not only be undesirable but potentially impossible.
According to one report by Morgan Stanley’s emerging market equity team, semiconductor giant TSMC’s $40 billion facility in northern Phoenix cost twice as much as similar plants in Taiwan.
«Although complete decoupling from China is unlikely because dependencies and interlinkages between China and the world are too strong, supply chain diversification is happening,» said the report authored by Titania Kandhari and Saumya Jain.
EV: $7 Trillion
In the electric vehicle industry alone, for example, Morgan Stanley global director of research Katy Huberty said earlier this week that a «re-wiring» of the sector’s supply chain out of China would cost $7 trillion through 2040.
«The reality is that a complete decoupling of the US economy from China is neither possible nor desirable. It will take many years to shift the supply chain, and the US will remain dependent on China in many areas,» said a separate Morgan Stanley report.
«However, investing in the technology sector now requires a change in thinking to navigate the economic implications of multi-polarization. Investors need to consider the broad investment themes associated with geopolitical risks rather than just taking a bottom-up view.»
In a diagram (see below), the bank illustrates the interconnectedness of the broader tech sector.
