Dependencies

China is the world's largest producer of active pharmaceutical ingredients (APIs) — the chemical compounds that give drugs their therapeutic effect. The United States imports approximately 80 percent of its API supply from overseas, with China and India as the dominant sources. For many generic drugs, Chinese API producers hold effective monopoly positions: there is no viable alternative supplier at the required scale and price point.

The dependency is most acute for older generic drugs — antibiotics, blood pressure medications, diabetes treatments — that are off-patent and produced at thin margins. The economics of API production favor large-scale, low-cost manufacturers, and Chinese state-owned enterprises have invested heavily in API capacity as part of a deliberate strategy to dominate global pharmaceutical supply chains. The BIOSECURE Act, passed in 2024, restricts federal procurement from Chinese genomics and biotechnology companies but does not address the broader API dependency.

The COVID-19 pandemic exposed the fragility of pharmaceutical supply chains when Chinese export restrictions on personal protective equipment and API precursors created shortages in U.S. hospitals. The experience accelerated domestic manufacturing initiatives, including the BARDA Strategic National Stockpile modernization and the Reshoring Initiative's pharmaceutical manufacturing program. Progress has been slow: building a domestic API manufacturing base requires capital investment, regulatory approval, and workforce development that cannot be accomplished on a short timeline.

China controls approximately 60 percent of global rare earth mining and more than 85 percent of rare earth processing capacity. The processing dominance is more strategically significant than the mining share: rare earth elements must be separated and refined into usable forms before they can be incorporated into permanent magnets, catalysts, and other industrial applications. The processing technology and infrastructure required are capital-intensive and took China decades to develop.

The United States has one operating rare earth mine — MP Materials' Mountain Pass facility in California — but lacks domestic processing capacity at scale. MP Materials ships concentrate to China for processing, then reimports refined material. The company has announced plans for domestic processing capacity, supported by Department of Defense contracts, but full domestic processing capability remains years away. The dependency extends beyond rare earths to lithium, cobalt, nickel, and graphite — all critical inputs for electric vehicle batteries and energy storage systems.

China has demonstrated willingness to use mineral export controls as a geopolitical instrument. In 2023, China imposed export restrictions on gallium and germanium — metals used in semiconductors and defense electronics — citing national security. In 2024, restrictions were extended to antimony, used in ammunition and flame retardants, and to certain graphite products used in battery anodes. The restrictions have not yet caused acute shortages but have accelerated allied efforts to develop alternative supply chains through the Minerals Security Partnership and bilateral agreements with Australia, Canada, and African producers.

China produces approximately 80 percent of the world's solar panels and dominates every stage of the solar supply chain: polysilicon production, wafer slicing, cell manufacturing, and module assembly. The Xinjiang Uyghur Autonomous Region accounts for roughly 35 percent of global polysilicon production. The Uyghur Forced Labor Prevention Act, signed in December 2021, creates a rebuttable presumption that goods produced in Xinjiang involve forced labor and are therefore prohibited from U.S. import.

The UFLPA has created significant disruption in U.S. solar panel imports, with Customs and Border Protection detaining shipments from manufacturers unable to document that their supply chains are free of Xinjiang inputs. The solar industry has argued that the enforcement pace threatens domestic clean energy deployment targets. The tension between supply chain integrity requirements and renewable energy deployment timelines is a recurring feature of U.S. solar policy.

Chinese solar manufacturers have responded to U.S. tariffs and UFLPA enforcement by routing production through Southeast Asian countries — Vietnam, Malaysia, Thailand, Cambodia — in a practice known as transshipment. The Commerce Department has investigated and imposed duties on Southeast Asian solar imports found to involve Chinese-origin cells and wafers. The Inflation Reduction Act's domestic content requirements for the Investment Tax Credit create additional incentives for genuinely domestic solar manufacturing, and several major facilities have been announced, though production at scale remains years away.

China manufactures approximately 90 percent of the world's printed circuit boards and dominates the assembly of consumer electronics, telecommunications equipment, and industrial control systems. The dependency extends to components: passive components (capacitors, resistors, inductors), connectors, and display panels are produced predominantly in China and Taiwan, with Chinese manufacturers holding significant market share in commodity categories.

The defense and critical infrastructure implications of electronics supply chain dependency are distinct from the consumer electronics case. The Department of Defense has identified the printed circuit board supply chain as a critical vulnerability, noting that U.S. defense systems contain components sourced from Chinese manufacturers, including some on restricted lists. The Trusted Supplier program and domestic PCB manufacturing initiatives have made limited progress against a supply chain that is deeply integrated with Chinese production.

The CHIPS and Science Act, signed in August 2022, allocated $52 billion for domestic semiconductor manufacturing and research, with the largest share going to advanced logic and memory fabrication facilities. TSMC, Samsung, Intel, and Micron have announced major U.S. fabrication investments supported by CHIPS Act grants. The Act includes guardrails prohibiting recipients from expanding advanced chip manufacturing in China for ten years. The first CHIPS-funded facilities are expected to reach production in 2025–2026, though at costs substantially higher than Asian competitors.

China dominates the global lithium-ion battery supply chain, accounting for approximately 75 percent of global battery cell manufacturing capacity and controlling the processing of most critical battery materials. CATL and BYD together hold more than 50 percent of global EV battery market share. The Inflation Reduction Act's Foreign Entity of Concern provisions restrict EV tax credits for vehicles using batteries or battery materials sourced from Chinese companies, creating a direct policy tension between EV adoption goals and supply chain security objectives.

The battery material dependency runs deeper than cell manufacturing. China processes approximately 65 percent of global lithium, 70 percent of global cobalt, and nearly all of the world's battery-grade graphite. Building alternative processing capacity requires mining investment, processing infrastructure, and environmental permitting that takes years to complete. Several U.S. and allied companies have announced battery material processing facilities, but the timeline for meaningful supply chain diversification extends well into the 2030s.

Chinese automakers have not yet achieved significant U.S. market penetration — the 100 percent tariff on Chinese EVs imposed in 2024 effectively closes the U.S. market to direct Chinese vehicle imports. But Chinese battery technology and manufacturing expertise are embedded in the global supply chains of non-Chinese automakers, and Chinese companies are investing in battery manufacturing facilities in Mexico and other countries that could serve the North American market under different tariff regimes.

The U.S. policy response to supply chain dependency has been the most comprehensive in decades. The combination of tariffs (Section 301, Section 232), export controls (Entity List, October 2022 semiconductor rules), investment restrictions (CFIUS, FIRRMA, ICTS rules), domestic manufacturing incentives (CHIPS Act, IRA), and procurement restrictions (NDAA §889, UFLPA, BIOSECURE Act) represents a significant restructuring of the policy framework governing U.S.-China economic relations.

The gaps in the response are significant. Pharmaceutical API dependency has received less policy attention than semiconductors or batteries, despite representing a more acute near-term vulnerability. The UFLPA enforcement mechanism is resource-constrained, with CBP lacking the staff and data systems to process the volume of detained shipments. The domestic manufacturing incentives in the CHIPS Act and IRA are large in absolute terms but small relative to the scale of Chinese state investment in the same sectors over the past two decades.

The fundamental challenge is that supply chain diversification is expensive, slow, and politically contested. Domestic manufacturing of goods currently produced cheaply in China will raise prices for consumers and businesses. The political economy of supply chain security — where the costs are concentrated and visible, and the benefits are diffuse and contingent on scenarios that may not materialize — makes sustained policy commitment difficult. The dependency that took thirty years to build will not be unwound in a single legislative cycle.