Decoupling Today

From Globalization to Strategic Exposure

Much of China’s spectacular ascent was made possible by the very liberal economic order the U.S. helped build. After joining the World Trade Organization in 2001, China leveraged access to global markets to supercharge its growth. Western firms flocked to the country, eager to tap into its cheap labor and seemingly limitless industrial capacity.

This era of globalization was supposed to bind nations together in peaceful interdependence. Instead, it has created a dangerous asymmetry: a Western world deeply reliant on Chinese supply chains, and a Chinese state that has used that dependency to bolster its own strategic autonomy.
U.S. companies are now deeply embedded in China across sectors—from semiconductors and pharmaceuticals to rare earths, consumer goods, and heavy industry.

In many cases, they are dependent not just on Chinese labor, but also on Chinese willingness to supply key assets. This makes the private sector an unwitting hostage in the growing rivalry between Washington and Beijing. The West outsourced manufacturing; China insourced power.

The Illusion of Stability

For China, Taiwan is the final piece of the national puzzle—a symbol of unity and unfinished business from the civil war. For the United States, Taiwan is not only a key strategic partner, but also a linchpin of global tech infrastructure, producing over 60% of the world’s semiconductors, and over 90% of the most advanced chips, via companies like TSMC.

If Beijing were to invade Taiwan—whether through a full-scale amphibious assault, a blockade, or cyber and missile strikes—it would trigger an economic and geopolitical shockwave on a scale we have not seen since World War II.
Overnight, global companies could find themselves locked out of China—assets frozen, contracts voided, supply chains collapsed. Ships stuck at sea, semiconductor production halted, and financial markets in freefall. This isn't speculative fiction—it’s a plausible geopolitical flashpoint, and many U.S. military and intelligence assessments suggest it could happen this decade.
The potential collapse of the global semiconductor supply chain would bring industries from Detroit to Düsseldorf to a standstill.

And yet, many still believe such a scenario is too extreme to contemplate. But in geopolitics, the improbable is not the same as the impossible. As Putin’s invasion of Ukraine showed, assumptions of rational restraint can be tragically wrong.

The Case for Strategic Decoupling

Decoupling recognizing the difference between economic efficiency and national resilience. It means reducing exposure in critical sectors—such as pharmaceuticals, energy, defense, and advanced computing—and rebuilding industrial capacity at home or in trusted allied nations.

There are already signs this shift is underway. The U.S. CHIPS and Science Act is one attempt to bring semiconductor manufacturing back to American soil.
Japan and the EU are also investing in strategic autonomy. But progress is slow, and time is short.
Think of the Western firms that had to abruptly exit Russia in 2022 after the Ukraine invasion. Now imagine that on a scale ten times larger, with a country that holds far more cards in the global economy.
Even if direct military conflict is avoided, China is reshaping the global order through other means: infrastructure investment via the Belt and Road Initiative, digital governance through Huawei’s 5G systems, and political leverage via control of critical materials like lithium and cobalt.

China is building what some analysts call a "world island" of influence—one that stretches across Africa, South America, the Indo-Pacific, and increasingly Europe. This strategy is subtle but deliberate: bypass direct confrontation with the U.S., and instead build an alternative ecosystem of dependency.

Taking the Pain Now

It’s easy to criticize decoupling when the skies are clear. But history has shown that the cost of strategic inaction is always higher in a crisis. In that context, Trump’s instinct to “rip off the Band-Aid” starts to look less reckless and more realist. Better to endure manageable disruption today than to face catastrophic losses tomorrow.

Many multinational companies remained deeply embedded in China not because it’s the most secure option, but because it’s the path of least resistance. Trump disrupted that complacency.
By using tariffs and other tools, he essentially imposed a cost on dependency—forcing boardrooms to finally ask: What if China becomes uninvestable overnight?
Shifting supply chains isn’t easy. It’s expensive, complex, and time-consuming. But the longer companies delay, the harder the transition becomes.
In moments of calm, governments can provide tax incentives, infrastructure support, and gradual implementation. In a moment of war, none of that will be possible.

So yes, Trump’s strategy is abrasive. But it was also prescient in this sense: decoupling is not a question of “if” anymore—it’s a question of “how” and “when.”

Friction Today or Collapse Tomorrow

The real choice is not between a smooth global economy and painful decoupling. It’s between strategic friction now and strategic collapse under pressure later.

In this light, Trump’s early moves—whatever their flaws—can be seen as a fire drill: loud, disruptive, but potentially life-saving. The goal should not be to romanticize chaos, but to recognize that the worst time to rewire your economy is in the middle of a geopolitical firestorm.

The smart play is to act while the system is still functioning. Use the time we have to unwind the most vulnerable dependencies, re-shore key industries, and prepare for scenarios that once seemed unlikely—but now feel all too real. Better to sweat in peace than bleed in war.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Ralf Leineweber / Unsplash.