The Hospitals

Active pharmaceutical ingredients (APIs) are the chemically active components of finished drugs. The United States produces a small and declining share of the APIs used in its pharmaceutical supply chain. China and India together account for the majority of global API production, with China dominant in the upstream chemistry — the synthesis of basic chemical building blocks, called starting materials, from which APIs are manufactured.

The FDA does not publish comprehensive data on the country of origin of APIs used in U.S. drugs, a gap that has been repeatedly criticized by the Government Accountability Office and congressional oversight committees. Independent analyses, including work by Rosemary Gibson and the Biomedical Advanced Research and Development Authority, estimate that China supplies 80–90% of the starting materials for APIs used in the United States, including for antibiotics, blood pressure medications, diabetes drugs, and chemotherapy agents.

The concentration is most acute in generic drugs, which account for approximately 90% of U.S. prescriptions by volume. Generic manufacturers operate on thin margins and have systematically offshored API production to lower-cost jurisdictions over three decades. Chinese API producers benefit from state subsidies, lower environmental compliance costs, and economies of scale that make domestic or allied-country production economically uncompetitive without sustained policy intervention.

India is the world's largest exporter of generic drugs by volume and supplies approximately 40% of U.S. generic drug imports. But Indian generic manufacturers are themselves heavily dependent on Chinese API inputs. The India-China pharmaceutical supply chain is a two-stage dependency: Chinese chemistry feeds Indian formulation, which feeds the U.S. market. A disruption at the Chinese API level propagates through Indian manufacturing to U.S. pharmacy shelves.

This dependency was demonstrated during the early months of the COVID-19 pandemic, when Chinese API export restrictions and factory shutdowns created shortages of finished drugs in India and downstream shortages in the United States. The episode prompted the Biden administration's 100-day supply chain review, which identified pharmaceuticals as one of four critical supply chains requiring immediate attention alongside semiconductors, large-capacity batteries, and critical minerals.

The BIOSECURE Act, passed by the House in 2024 and under Senate consideration, would prohibit federal agencies — including the Department of Defense and the Department of Veterans Affairs — from contracting with certain Chinese biotechnology companies, including BGI Genomics, MGI Tech, Complete Genomics, WuXi AppTec, and WuXi Biologics. The bill does not address API sourcing directly but signals congressional intent to reduce health system exposure to Chinese-linked entities across the biotechnology and pharmaceutical value chain.

China is the world's second-largest medical device market and a major manufacturer of lower- and mid-tier medical equipment. Chinese manufacturers supply a significant share of the hospital consumables, diagnostic equipment, and imaging components used in U.S. health facilities — including syringes, IV bags, surgical gloves, pulse oximeters, ultrasound probes, and CT scanner components.

The higher end of the medical device market — MRI systems, advanced surgical robotics, cardiac devices — remains dominated by U.S. and European manufacturers: GE HealthCare, Siemens Healthineers, Philips, Medtronic, Abbott, and Boston Scientific. But Chinese manufacturers, led by Mindray, United Imaging, and Neusoft Medical, have made significant inroads in mid-tier imaging and patient monitoring equipment, particularly in cost-sensitive procurement environments.

The component supply chain for high-end devices also has Chinese exposure. Rare earth permanent magnets in MRI gradient coils, lithium-ion batteries in portable medical devices, and printed circuit boards in diagnostic equipment all draw on Chinese-processed materials or Chinese-manufactured components. The device-level supply chain is less concentrated than the API supply chain but follows a similar pattern of upstream Chinese dominance in materials and components.

The COVID-19 pandemic exposed the U.S. health system's dependence on Chinese-manufactured personal protective equipment with unusual clarity. At the pandemic's onset, China produced approximately 50% of global surgical masks and a dominant share of N95 respirators, nitrile gloves, and isolation gowns. When Chinese domestic demand surged and export controls were imposed in early 2020, U.S. hospitals faced acute shortages of basic protective equipment.

The federal response included emergency domestic production investments, Defense Production Act invocations, and bilateral negotiations with Chinese suppliers. Domestic PPE manufacturing capacity expanded significantly between 2020 and 2022, with new facilities opened by Honeywell, 3M, and smaller domestic producers. But as pandemic demand subsided and Chinese producers resumed normal export volumes at lower prices, many domestic PPE manufacturers reduced capacity or exited the market. The structural economics that created the pre-pandemic dependence reasserted themselves.

The Strategic National Stockpile, which holds emergency reserves of medical countermeasures, PPE, and pharmaceuticals, was significantly depleted during the pandemic and has been partially replenished. The HHS Administration for Strategic Preparedness and Response has prioritized domestic sourcing for stockpile replenishment, but budget constraints and procurement rules that default to lowest-cost suppliers create persistent tension between resilience objectives and procurement economics.

BGI Genomics and its subsidiaries — MGI Tech and Complete Genomics — represent a distinct category of health system exposure that combines equipment supply, service provision, and genomic data collection. BGI is the world's largest genomic sequencing company by volume. Its DNBSEQ sequencing platforms are used in research institutions, hospitals, and public health laboratories in the United States and globally.

The national security concern is not primarily about equipment reliability. It is about the genomic data generated by BGI-manufactured sequencers and processed through BGI-affiliated software and cloud services. Genomic data is uniquely sensitive: it is permanent, identifies individuals and their relatives, and has potential applications in biological research, insurance underwriting, and — in the most concerning assessments — the development of biological agents targeted at specific population groups.

The Defense Department prohibited the use of BGI and MGI sequencing equipment in DoD facilities in 2023. The BIOSECURE Act would extend similar restrictions to all federal health agencies. Several U.S. research institutions have voluntarily replaced BGI equipment following national security guidance. Illumina, the dominant U.S. sequencing platform, has benefited from this substitution trend, though its own acquisition of GRAIL — a cancer detection company — was blocked by the FTC on antitrust grounds, illustrating the complexity of the competitive landscape.

Federal policy has addressed pharmaceutical supply chain resilience through multiple instruments since 2020: the CARES Act's drug shortage reporting requirements, the executive order on essential medicines and medical countermeasures, the BIOSECURE Act's procurement restrictions, and the FDA's drug shortage task force. The Department of Defense has funded domestic API manufacturing through the Defense Production Act, including investments in Phlow, a nonprofit API manufacturer established specifically to produce essential generic drugs domestically.

The structural barriers to reshoring are significant. API manufacturing is capital-intensive, requires specialized chemical engineering expertise, and operates under stringent FDA quality and environmental regulations that increase costs relative to Chinese producers. The generic drug market's price compression — driven by pharmacy benefit managers, group purchasing organizations, and competitive bidding — systematically disadvantages higher-cost domestic producers. Without sustained demand-side intervention (preferential procurement, price floors, or long-term government offtake agreements), domestic API investment faces adverse economics.

The hospital procurement system compounds the problem. Group purchasing organizations aggregate buying power across health systems and negotiate on price, which structurally favors the lowest-cost supplier. Chinese-manufactured medical devices and consumables that meet FDA quality standards compete effectively on price in this environment. Reshoring medical supply chains requires either changing the procurement incentive structure or accepting higher costs — a trade-off that has not been resolved at the policy level.