In the absence of more attention to the supply chain, the U.S. is becoming even more reliant on Beijing—and ‘friendshoring’ often increases that dependence.
Despite all of President Biden’s efforts to contain China and bring production home, there is more interpenetration of the two economies today than ever. Recently released 2022 trade statistics show that U.S. imports of products from China totaled $536.8 billion in 2022, a 6.3 percent increase from 2021. U.S. exports to China grew far less—by 1.6 percent to $153.8 billion. And these figures may understate the imbalance, because they don’t capture the entire supply chain of inputs made in China.
There are several parts to this dependence. First, U.S. producers that rely on Chinese production for inputs are insufficiently committed to diversifying sources of supply. A prime offender is Apple, which contends that it’s just too difficult to relocate production. Apple’s main assembly plant in Zhengzhou makes about three-quarters of the world’s iPhones.
But Apple’s main cellphone competitor proves that Apple’s story is nonsense. South Korea–based Samsung, which once also relied on China-based production, has successfully diversified. According to the Financial Times, Samsung closed its Chinese plants in 2019, and now builds more than three-quarters of its cellphones in six countries, from Argentina to Vietnam.
A more urgent example is the pharmaceutical industry. When the COVID pandemic broke out, face masks and hospital gowns were suddenly in short supply. Americans who had never given much thought to supply chains learned that China was the prime supplier of all this vital stuff; and China had given priority to its domestic needs. Eventually, easy-to-make products like face masks materialized from China and elsewhere.
Far more alarming is America’s continued dependence on China for the ingredients that go into drugs. American pharmaceutical giants dominate drug production, but at least half of all the chemical ingredients for these drugs, known as APIs (for “active pharmaceutical ingredients”), come from China. And this figure probably understates the dependence, since there are no reliable statistics. APIs that appear to originate elsewhere may in fact originate in China. This dependence has not diminished since the pandemic began.
Barry Lynn, author of the prophetic book End of the Line, which warned of a potential supply chain catastrophe, says that the U.S. would run out of vital prescription drugs in about a week if China withheld exports of APIs in an escalated crisis or another COVID shutdown—and that mass panic would result. The administration has no plan either to deal with such an emergency or to revive domestic API production.
Once, U.S. companies made nearly all of the APIs that went into domestically produced drugs. Then, most of this production shut down as Big Pharma found it cheaper and more profitable to outsource it to China. Despite the risks, there is little industry interest in bringing this production home.
Unlike semiconductors, manufacture of APIs is pretty much basic chemistry. There are remnants of API production in some regional clusters, around Richmond, Atlanta, and northern New Jersey, and some state-level efforts to increase production as economic development, but nothing remotely adequate to the need if the goal is to secure national supply.
