Assessments of U.S.-China economic decoupling often rely on bilateral trade figures, interpreting reduced trade volumes as evidence of weakening ties. However, this overlooks the complexity of modern supply chains, where foreign-owned firms operating within a country may still depend on global supplier networks not fully reflected in trade statistics. For instance, a multinational enterprise might reduce direct imports from China while continuing to source critical components through internal production networks abroad. To capture these hidden interdependencies, researchers combined trade data with foreign investment and corporate ownership records, offering a more accurate picture of the depth—and boundaries—of economic separation between the two nations.
The study uses comprehensive global production datasets to analyze integration across three dimensions: upstream dependence (how much domestic production relies on foreign inputs), downstream dependence (how much output is destined for foreign markets), and consumption dependence (how much domestic consumption incorporates value added outside national borders). It further distinguishes between trade-related exposure—cross-border transactions—and FDI-related exposure, where multinational corporations coordinate production across countries.
Overall, U.S. production remains largely domestic, with less than 10% reliant on global supply chains. However, sectoral differences are significant. Traditional manufacturing shows notable trade dependence, which declined from nearly 19% before the 2008 financial crisis to about 11% by 2020. Services remain minimally exposed, below 5%. In contrast, advanced manufacturing sectors such as electronics and pharmaceuticals exhibit higher reliance on foreign direct investment (FDI), with upstream dependence peaking around 24% and stabilizing near 15%.
Consumption in the U.S. is far more integrated globally, particularly in manufactured and high-tech goods. Between one-quarter and one-third of American consumption depends on international supply networks. In textiles, trade-linked consumption dependence surged from roughly 11% in 2000 to over 80% by 2020. High-tech items like automobiles and electronics increasingly rely on FDI-based sourcing. The share of Chinese value embedded in U.S. consumption rose from under 5% to approximately 15–16%, reaching nearly 44% in electronics and 56% in textiles.
China, by comparison, remains more integrated at the production level but less so in domestic consumption. By 2020, about 15% of its upstream production depended on global inputs, while downstream reliance on foreign buyers settled between 16% and 20%, down from a peak of 33% in 2006. Consumption dependence also decreased, falling from a mid-2000s high of 23% to around 20%, reinforcing its identity as an export-oriented economy.
Within China, R&D-intensive industries maintain strong global linkages. While low-innovation sectors show limited dependence, medium- and high-tech manufacturing rely heavily on both trade and FDI channels. Trade-based upstream reliance has declined across sectors—textiles dropped from 16% to 8%—while FDI-based dependence has grown, especially in automobiles (rising from 10% to 16%) and advanced electronics.
On the export side, Chinese manufacturing remains highly outward-focused. Trade-related downstream dependence peaked near 40% in low-tech industries before the global financial crisis and stabilized around 25–28% in high-tech sectors post-2008. FDI-linked exports have also increased, reaching 19–20% in advanced manufacturing by 2020, highlighting the expanding role of multinational firms in China’s export ecosystem.
Consumption patterns in China are shifting toward higher-tech goods and greater reliance on FDI-sourced inputs. While trade-linked consumption dependence in high-tech industries declined after peaking above 30% in the mid-2000s, FDI-based dependence rose steadily to about 14% by 2020. In automobiles, FDI-related consumption dependence jumped from 18% to 33%. Meanwhile, supply chain sourcing has diversified away from the U.S. and Japan toward ASEAN, emerging markets, and other regions, indicating strategic rebalancing rather than disengagement.
Indirect linkages between the U.S. and China have grown significantly through third-party economies. From the U.S. perspective, the value of Chinese inputs embedded in domestic production via indirect trade rose from under $5 billion in 2000 to over $30 billion by 2020. FDI-mediated sourcing remained below $15 billion. In consumption, the embedded value from China increased from under $20 billion to about $210 billion, lifting China’s share of U.S. consumption-related global exposure from 5% to roughly 15–16%. From China’s standpoint, direct dependence on the U.S. market fell from nearly 20% to 16–17%, even as indirect exports through intermediaries like Mexico, Canada, Vietnam, and South Korea expanded sharply—Mexico alone accounted for about 25% of China-linked inputs used in U.S. production—demonstrating reconfiguration rather than true disconnection.
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U.S.-China Economic Interdependence Has Shifted, Not Disappeared
Progress on U.S.-China “decoupling” is often judged by trade data, with falling trade taken as evidence of weaker economic ties. But this view misses how modern supply chains operate. Many goods used in the U.S. are produced by foreign-owned firms operating domestically, which rely on global supplier networks that are not fully captured in bilateral trade statistics. A foreign-invested firm may still import key inputs from abroad through internal networks, even as measured trade declines. To reveal these hidden links, the researchers combine trade data with information on foreign investment and firm ownership, allowing them to assess the true extent — and limits — of U.S.-China decoupling. n nThe data. The paper combines detailed global production data with information on foreign-owned firms to show how countries are connected through modern supply chains. Using this approach, the authors examine global integration from several angles: n nUpstream dependence: How much production in the U.S. and China depends on foreign inputs n nDownstream dependence: How much of what the U.S. and China produces is ultimately sold to foreign buyers n nConsumption dependence: How much domestic consumption in the U.S. and China relies on value created outside these two countries, including foreign inputs embedded in final goods n nThe researchers also distinguish between U.S. and China dependencies on global supply ,chains that operate through direct trade — cross-border buying and selling (trade-related dependence) — and those that run through foreign investment, where multinational firms organize production across countries (FDI-related dependence). n nDependence of U.S. production on foreign trade by industry n nDependence of U.S. production on foreign FDI by industry n nU.S. production is largely domestic overall. Less than 10% of U.S. production is dependent on global supply chains, though exposure varies sharply by industry. Trade-based linkages appear in traditional manufacturing, where trade reliance peaked near 19% before the financial crisis and declined to about 11% by 2020, while services remain lightly exposed at below 5%. In contrast, FDI-related dependence centers on advanced manufacturing: upstream dependence in high- and medium-tech sectors such as electronics and pharmaceuticals peaked around 24%, and stabilized near 15%. n nU.S. consumption is far more globally exposed than production, especially in manufactured and higher-technology goods. Roughly one-quarter to one-third of U.S. consumption relies on global supply chains. In traditional sectors such as textiles, trade-related consumption dependence rose sharply — from about 11% in 2000 to over 80% by 2020 — while high-tech products such as autos and electronics depend more on FDI networks. China’s share of value embedded in U.S. consumption dependence has grown from under 5% to over 15% overall, and much more in manufacturing, reaching nearly 44% in electronics and 56% in textiles. n nShare of each country in U.S. consumption dependence in 2000 versus 2020 n nIn contrast to the U.S., China remains more globally integrated on the production side and less so on the consumption side. By 2020, about 15% of China’s upstream production depended on global supply chains, while downstream dependence on foreign markets settled at 16–20 %, down from a peak of about 33% in 2006. Consumption dependence also declined over time, falling from a mid-2000s peak of roughly 23% to about 20% by 2020, reinforcing China’s role as a production- and export-oriented economy rather than a consumption-driven one. Across sectors, trade-based dependence has declined, while FDI-based dependence through multinational production networks has risen in advanced manufacturing, especially in automobiles and electronics. China has also diversified its supply chain exposure away from advanced economies toward ASEAN, emerging markets, and Rest of World. n nChina’s production system remains more globally exposed, particularly through export markets, even as overall supply chain dependence has declined. By 2020, 80% or more of China’s upstream production relied on domestic inputs, while about 15% depended on global supply chains. Downstream dependence on foreign markets peaked at about 33% in 2006 and settled at 16–20% by 2020, compared with upstream dependence, which peaked near 21% and declined to around 15%. Consumption dependence also moderated, settling at roughly 20% by 2020, reinforcing China’s role as an export-oriented production hub rather than a consumption-driven economy. n nChina’s upstream exposure persists in R&D-intensive manufacturing. Low R&D industries show relatively limited reliance on global supply chains, while medium-tech sectors remain trade dependent and high-tech manufacturing relies heavily on both trade and FDI channels. Across industries, trade-related upstream dependence has fallen, while FDI-related dependence has risen: in textiles, trade reliance declined from 16% in 2000 to 8% in 2020, while in automobiles, FDI-related upstream dependence increased from 10% to 16%. Similar increasing trends occurred in advanced electronics and machinery, reflecting the growing role of multinational production networks in more advanced manufacturing. n nOn the downstream side, China’s manufacturing remains highly export oriented. Trade-related downstream dependence exceeded 20% across manufacturing in the early 2000s and peaked before the global financial crisis at nearly 40% in low-tech manufacturing, before declining and stabilizing, with high-tech manufacturing remaining around 25–28% after 2008. Although smaller overall, FDI-related downstream dependence is concentrated in advanced manufacturing, rising to about 19–20% by 2017–2020, underscoring the growing role of multinational firms in China’s export structure. n nChina’s consumption dependence has increasingly shifted toward high-tech industries and toward FDI-based channels. Trade-related consumption dependence in high-tech industries rose above 30% in the mid-2000s before declining, while FDI-related consumption dependence increased steadily, reaching about 14% by 2020. In contrast, traditional products, such as textiles saw trade-related consumption dependence fall from 11% to 5%, while FDI-related consumption dependence rose sharply in automobiles, from 18% to 33%. At the same time, China’s supply chain geography has diversified away from the U.S. and Japan toward ASEAN, emerging markets, and the Rest of World, indicating rebalancing rather than retreat from globalization. n nU.S.-China supply-chain interdependence increasingly rerouted through third economies. From the U.S. side, indirect trade-related inputs from China embedded in U.S. production rose from under $5 billion in 2000 to over $30 billion by 2020, while FDI-related indirect sourcing remained below $15 billion. The effect is larger in consumption: China’s value embedded in U.S. consumption increased from under $20 billion to about $210 billion, raising China’s share of U.S. consumption-related global suppy chain exposure from about 5% to roughly 15–16%. From China’s perspective, direct reliance on the U.S. market fell from nearly 20% to about 16–17%, even as indirect sales via intermediaries such as Mexico, Canada, Vietnam, and South Korea expanded sharply, with Mexico alone accounting for about one-quarter of China-linked inputs used in U.S. production — evidence of reconfiguration rather than true decoupling.