The realization of US dependency on China for critical supply chains has been slow in coming. For decades since China was “opened” by US President Richard Nixon as part of Secretary of State Henry Kissinger’s grand China strategy or “opening China,” the Chinese communists have risen to global dominance in manufacturing and production, processing, and export of the essential raw materials, intermediate components and building blocks, and specialized chemicals and other ingredients that are required early in a supply chain to produce a plethora of end-use items that are critical to the US (and world) economy.
Most important to the Chinese, President Jimmy Carter granted China “most-favored nation” trade status under the WTO in 1979, which gave China direct access to the US market and provided preferential trade treatment, including lower tariffs and a removal of import quotas. Still more important to Beijing was the granting of “permanent normal trade relations” with the US with the passage of the U.S.-China Relations Act of 2000 (signed in 2001) concurrent with China’s admittance to the World Trade Organization in November 2001.
Furthermore, as a direct result of these US policies, according to a 2018 Economic Policy Institute report, the offshoring of US manufacturing to China led to a loss of approximately 3.7 million American Jobs between 2001 and 2018. Incredibly, the number of US firms with China factors grew from approximately 3000 in 2000 to over 30,000 (!) by 2018 (estimates derived from EPI analysis of outsourcing and Bureau of Economic Analysis of US investments in China through the period).
This offshoring was entirely predictable – and a shameful legacy of the so-called US “free traders,” as US firms took advantage of low Chinese labor costs to increase their profits. Specifically, average Chinese wages were $0.60/hour in 2000) increasing to a still-paltry $6/hour in 2024) as comparted to average wages in the US of $15/hour in 2000 increasing to $25/hour in 2024. In short, China’s “economic miracle” came at the expense of American workers.
While these gargantuan economic shifts were transpiring, the Chinese also began a campaign to capture and control supply chains that are critical to the US and the rest of the world. Beijing well understood that the potential disruption of critical supply chains could provide China with enormous leverage in future international disputes. Unimpeded supply chains are vitally important to sustain US military readiness, economic resilience, and technological superiority especially in international crises or conflicts.
And US free trade policies with China over the last 50+ years have made the US vulnerable to the interruption of supply chains with Chinese characteristics.
Let us examine the problem further.
SUPPLY CHAINS
The concept of supply chains has evolved throughout human history. Refer to the Roman army’s logistica, the Industrial Revolution’s concepts of “mass production,” Henry Ford’s revolutionizing the auto industry through “vertical integration,” the US Army’s development of “logistics” as a strategic discipline in World War II. The term “supply chain management” was introduced by British logistician and business consultant Keith Oliver in a 1982 Financial Times interview.
A supply chain consists of the full network of production processes, people, resources, logistics, transportation assets, and technologies that are involved in finding (e.g., raw materials/minerals), manufacturing (e.g., computer chips, components, and end-use equipment), and delivering (e.g., rail or ship) a product or service from raw materials to the end consumer/customer.
There are supply chains for virtually everything, e.g., automobiles, food supplies, pharmaceuticals, coffee, oil and gas, medical devices, etc., etc.
KEY US SUPPLY CHAINS DEPENDENT ON CHINA
The following critical supply chains are some of those that are dependent on China sourcing whose interruption would create serious problems for the US.
Rare Earth Elements and Critical Minerals. These are a group of 17 chemically similar metallic elements in the Periodic Table that, while widely dispersed around the world, are seldom found in sufficient concentrations that can be easily mined and extracted. REEs are critical for modern manufacturing processes, e.g., magnets, catalytic converters, camera lenses, car batteries, television screens, etc. Per the Financial Times, China controls over 70% of the production of the 17 REEs, as well as over 60% of the production of these critical minerals that are also important for modern manufacturing processes: gallium, antimony, fluorspar, titanium, vanadium, indium, tellurium, graphite, bismuth, tungsten, and magnesium. As these supply chains are a critical point of geopolitical leverage in China’s trade and tech war with the US, the Chinese have invested $13.8 billion in geological exploration annually since 2022 alone, as well as $57 billion in loans since 2000 via at least 26 state-backed financial institutions for mining and processing of REEs and critical minerals throughout the developing world (especially Africa).
Lithium-Ion Batteries and Electric Vehicle Components. As a result of massive Chinese investments over the past 15 years, China now produces over 80% of the world’s solar panels, over 60% of the world’s electric vehicles, and over 75%of the world’s lithium-ion batteries and battery cells. The US currently imports about 73% of its lithium-ion batteries from China, with Chinese grid-scale batteries accounting for 65% of US imports during the first half of 2025. Interruptions could lead to production halts at US EV plants like Tesla and GM, deferred wind and solar projects, and price hikes in smartphones, laptops, and other IT components.
Semiconductors and Electronics Components. These are used in manufacturing all sorts of information technology-based end-use devices, including satellites, drones, smartphones, laptops, industrial robots, military weapons systems, digital cameras, 5G and other telecommunications infrastructure components, etc. China currently controls 40-60% of semiconductor and electronic component inputs, as well as 22% of consumer electronics exports to the US. Interruption of this supply chains would adversely impact development of US data centers, cloud computing, US military missile and weapons systems (and the US defense electronics industry in general), industrial automation systems, air traffic control systems, satellite communications systems, and much more.
Pharmaceuticals and Active Pharmaceutical Ingredients. Pharmaceuticals are“substances used in the diagnosis, treatment, or prevention of disease and for restoring, correcting, or modifying organic functions.” An API is the biologically active component of a drug responsible for its therapeutic effect, i.e., the chemical substance that produces the intended pharmacological action of the given drug. A key starting material is a critical component used to create APIs that directly influences a given drug’s structure, quality, and regulatory compliance. China currently controls the production of 80% of key starting materials (KSMs) and 33% of global API capacity. Interruptions in this supply chain could result in shortages of essential generic drugs, drug price inflation, and potential quality and safety problems with drug manufacture. Specific classes of drugs that would be adversely impacted include Penicillin and Amoxicillin (antibiotic), Lipitor (cholesterol-lowering), Metformin (diabetes), Acetaminophen and Ibuprofen (pain relievers), and Chemotherapy Agents like Cisplatin.
There are many other supply chains that China heavily impacts, including telecommunications equipment, consumer electronics, textiles and apparel, machinery and mechanical appliances/tools, solar panels and other renewables.
US ACTIONS
The first serious US policy action aimed at reducing Chinese control of critical supply chains was President Trump’s Executive Order 13806, “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States,” signed in July 2017. The EO designated “resilient supply chains” as being “essential to the economic strength and national security of the United States.” The EO also noted that the US had lost over 60,000 American factories to China since 2000.
While that EO was an “attention-getter” for US policymakers, other more concrete actions were to follow, including the building of bipartisan support for legislation to correct Chinese-dominated supply chain dependencies over time.
By 2012, the US intelligence community had determined that Huawei Technologies and other Chinese companies were threats to US national security. For example, Huawei equipment could contain undetectable backdoors that could enable Chinese spying on or disabling of US networks. Furthermore, Article 7 of China’s 2017 National Intelligence Law mandates any organization/individual to “support, assist, and cooperate” with state intelligence, with no refusal possible. A bipartisan consensus enabled passage of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year 2019 (Public Law 115-232), which prohibited procuring or using certain telecommunications and video surveillance equipment/services from five Chinese companies.
Stimulated by the growing trade deficit with China, Chinese IP theft of US technologies, forced tech transfer by US companies operating in China, unfair Chinese trades practices (state subsidies and restricted market access to US companies in China), the Trump administration was the first to attempt to reset trade policy with China. A two-phase deal was negotiated during which time the US public was made aware of US dependencies on Chinese pharmaceuticals and precursor APIs, in particular. The key result was the implementation of tariffs on key Chinese exports, as the Chinese failed to deliver on its phase one promises to buy agreed-upon quantities of US agricultural and energy products.
That US policy shift was carried over to the Biden administration which passed the 2022 CHIPS Act. This bill was a massive bipartisan industrial policy push to rebuild US chipmaking dominance through tax incentives and other measures aimed at reducing/eliminating US dependencies on the Chinese semiconductor supply chain. Investments to date include over $400 billion in private capital commitments triggered by the Act (e.g., $65 billion by TSMC for Arizona fabrication facilities; $100+ billion by Intel for similar facilities in several states; $45 billion by Samsung in Texas; and $100 billion by Micron in New York.
CONCUDING THOUGHTS
US momentum continues in coming to grips with Chinese dominance of critical supply chains. Other actions aimed at reducing Chinese control of critical supply chains were stimulated by Trump’s US-China policy that have continued to the present day, including:
Reshoring. This is the practice of bringing manufacturing and services back to the U.S. from overseas. Stimulated by the 2022 CHIPS Act and the reciprocal tariffs of the second Trump administration, several companies are bringing manufacturing operations back to the US, including Apple, Intel, Nvidia, GE, GM, Micron, and Lockheed Martin (among over 200 projects as noted by the Reshoring Initiative).
Nearshoring: Stimulated by Trump’s reciprocal tariffs, this is a supply chain strategy where companies relocate business operations—such as manufacturing, assembly, sourcing, or services—from distant offshore locations (specifically, China) to geographically proximate countries. The advantages are cost-savings, easier collaboration with producers/integrators, and cost savings while reducing Chinese dependencies. As one result, Mexico overtook China as the number one US import source in 2023. With commitments from the US auto industry, nearshoring to Mexico is projected to grow 20-30% in 2026.
Friendshoring: This is a supply chain strategy where companies relocate manufacturing, sourcing, and production to from China countries that are geopolitical allies an/oror share similar political, economic, and democratic values to reduce dependencies on Chinese supply chains. The Trump administration has aggressively pursued reciprocal tariffs and trade negotiations with a number of countries, including Vietnam, India, South Korea, Japan, Taiwan, and Australia (the latter for production of rare earth elements and minerals).
The upside for the US of these policies? Derisking from China dependencies, tariff revenues, strengthening of alliances, and a diminishing of the Chinese manufacturing hegemony.
The downside for China? Loss of exports to the US. Economic turmoil throughout Chinese supply chains. A general slow-down of the Chinese economy. And potentially civil disorder.
All good for the world.
The end.