The United States relies more heavily on China for parts of its semiconductor supply chain than direct supplier figures suggest. A new report from the Semiconductor Industry Association reveals how manufacturing locations and upstream materials can expose hidden dependencies, including China's dominant position in processing certain rare earths and critical minerals used by the technology industry.
The United States has spent years trying to strengthen its semiconductor industry and reduce its dependence on China. However, a new supply-chain analysis suggests that understanding this dependence requires looking beyond the countries where American chipmakers purchase their equipment and materials.
A report from the Semiconductor Industry Association (SIA), published in October 2026, examines the global network of manufacturers, raw-material suppliers and component producers supporting semiconductor production in the United States. Its central finding is that a supply chain that appears concentrated among American, European and Japanese companies can still depend on production facilities and materials located elsewhere, including China.
According to the report, US semiconductor companies spend approximately $27 billion annually on manufacturing equipment and materials. About 95% of that spending goes to suppliers headquartered in the United States, Europe and Japan. But when the analysis considers where products are actually manufactured, rather than simply where suppliers are headquartered, the picture changes significantly.
The findings highlight a challenge for Washington: reshaping the semiconductor supply chain will require more than encouraging companies to buy from trusted suppliers. It will also require understanding where critical materials originate, which countries process them and how disruptions in one part of the network could affect chip production in another.
China's Share of the US Chip Supply Chain Is Larger Than Direct Figures Suggest
The SIA report distinguishes between a supplier's headquarters and the location where its products are manufactured. This distinction helps explain why the United States may have greater exposure to Chinese production than conventional purchasing figures indicate.
When suppliers are classified by their headquarters, China accounts for approximately 1% of the equipment and materials covered by the analysis. When measured by manufacturing location, China's share rises to about 5%.
That difference matters because a company based in the United States, Europe or Japan may operate factories or rely on subcontractors in China. American chipmakers can therefore purchase from a company headquartered in an allied country while still depending on Chinese manufacturing capacity somewhere in the production chain.
The report also identifies a similar pattern in Southeast Asia. The region's share rises from less than 1% when measured by supplier headquarters to approximately 10% when measured by production location.
These figures do not mean China manufactures most of the equipment used by US chipmakers. Rather, they show that supplier-headquarters data alone can obscure the geographic distribution of manufacturing and the vulnerabilities that may arise from it.
Annual US industry spending: Approximately $27 billion on the equipment and materials covered by the report.
Supplier headquarters: About 95% of spending goes to companies headquartered in the United States, Europe and Japan.
China's share by supplier headquarters: Approximately 1%.
China's share by manufacturing location: Approximately 5%.
Southeast Asia's share by manufacturing location: Approximately 10%, compared with less than 1% by supplier headquarters.
The central message is that the nationality of a supplier does not necessarily reveal the full origin of the products it sells. Understanding the real supply chain requires examining the companies, factories and upstream materials behind each transaction.
The Bigger Vulnerability: Rare Earths and Critical Minerals
Beyond the direct supply of semiconductor equipment and materials, the report highlights a deeper concern involving rare earth elements and other critical minerals.
China has established a powerful position in the processing of several minerals that support advanced manufacturing. According to the South China Morning Post's reporting on the SIA findings, China's share exceeds 90% in certain rare earths needed for chipmaking.
These materials can be important to the production of specialised components, manufacturing equipment and other technologies used throughout the semiconductor ecosystem. Their significance extends beyond computer processors to electric vehicles, telecommunications equipment, renewable energy systems and defence technologies.
Mining a mineral is only one stage of its supply chain. Extracted materials often require extensive processing, purification and conversion into forms suitable for industrial use. Even when raw resources are available elsewhere, a lack of alternative processing facilities can leave manufacturers dependent on a small number of countries.
This creates a potential vulnerability for the United States. If a critical material has few alternative suppliers, restrictions on exports, production disruptions or geopolitical tensions could make it more difficult for semiconductor manufacturers to obtain essential inputs.
The problem is not limited to rare earths. Semiconductor production depends on a wide range of specialised chemicals, gases, minerals, precision components and manufacturing tools. A shortage of one essential input can disrupt production even when other parts of the supply chain remain available.
Why America's Chip Industry Depends on a Global Network
Semiconductors are among the most complex products manufactured at industrial scale. Producing them requires highly specialised equipment, extremely pure materials, advanced manufacturing processes and strict quality controls.
Different stages of production are distributed across multiple countries because semiconductor manufacturing developed through decades of international investment, research and industrial specialisation.
Some companies focus on chip design, others manufacture silicon wafers, while additional suppliers produce lithography systems, deposition equipment, chemicals, testing tools and packaging materials. Each stage can depend on several layers of subcontractors and specialist suppliers.
This global network has helped the industry improve performance and lower costs. However, it also means that companies may have limited visibility into the origins of materials used several stages before a product reaches their factories.
The SIA report describes these upstream dependencies as a source of vulnerability. A supplier may appear reliable because it operates in a country considered a trusted trading partner, while the raw materials or components it needs originate from a more concentrated and potentially vulnerable source.
For policymakers, this creates a difficult balancing act. Moving every stage of semiconductor production into the United States would be costly, technically challenging and potentially impractical. Yet leaving critical inputs dependent on a narrow set of foreign sources could expose the industry to disruption.
The challenge is therefore to identify the most important vulnerabilities and build alternative sources where the benefits of doing so outweigh the costs.
How China Could Affect US Chip Production Without Manufacturing the Chips
China's influence over the semiconductor supply chain does not depend solely on its ability to manufacture advanced processors.
A country can affect an industry's production capacity by controlling materials or components that manufacturers cannot easily replace. If a chipmaker's equipment supplier cannot obtain a critical mineral or specialised input, the resulting disruption may affect production even if the chipmaker does not purchase anything directly from China.
For example, a US equipment manufacturer might source a component from a European partner. That partner could depend on a specialist material processed in China. If the material becomes unavailable, the European supplier may struggle to deliver the component, potentially delaying equipment production and installation in the United States.
This is an illustrative example of how upstream dependencies can transmit a disruption across borders. It does not mean every semiconductor tool or component depends on China, but it demonstrates why a complete supply-chain assessment must look beyond direct purchases.
Such exposure becomes especially important when the affected input is difficult to substitute. Semiconductor manufacturing equipment is engineered to operate within precise specifications, and replacing a material or component can require extensive testing and qualification before it can be used in production.
Consequently, an alternative supplier may exist on paper but still be unable to replace an established source immediately. This makes the location of critical upstream production an important consideration in US technology and national-security planning.
Why the Issue Matters for Artificial Intelligence
The semiconductor supply chain has become even more strategically important as demand for artificial intelligence infrastructure increases.
AI systems require large quantities of computing power, supported by advanced processors, memory chips, networking equipment and data-centre infrastructure. Manufacturing these products depends on the wider ecosystem of semiconductor equipment, materials and specialised components.
Companies investing in AI data centres therefore depend on more than the firms that design or manufacture their processors. They also rely on the upstream industrial network that supplies the tools and materials needed to produce those chips.
If a critical input becomes unavailable, the consequences can extend beyond chip factories. Equipment deliveries may be delayed, manufacturing capacity may expand more slowly than planned, and companies building data centres could face higher costs or longer project timelines.
The effects would depend on the specific material involved, the availability of alternative suppliers and the size of any disruption. A shortage of one input would not automatically stop the entire AI industry, but it could create pressure at particular points in the supply chain.
For US policymakers, the report reinforces the importance of evaluating AI infrastructure and semiconductor security together. Efforts to expand domestic chip production may achieve less than expected if the materials and equipment needed to operate those factories remain exposed to concentrated overseas supply.
US Efforts to Reduce Dependence on China
The United States has introduced policies intended to strengthen domestic semiconductor manufacturing and reduce risks associated with concentrated foreign supply chains.
These efforts include support for domestic chip production, investment in research and development, controls on certain advanced semiconductor technologies and cooperation with international partners.
However, the SIA report suggests that increasing domestic manufacturing capacity is only one part of the solution. US companies also need reliable access to the specialised equipment and materials that make semiconductor production possible.
The association recommends several measures:
- Expand domestic production: Increase US manufacturing capacity for critical materials and equipment where building alternative sources is practical.
- Develop strategic inventories: Maintain reserves of selected inputs that could be difficult to obtain during a disruption.
- Strengthen allied supply chains: Work with partners to diversify production and build complementary capabilities.
- Reduce dependence on concentrated mineral processing: Support alternative mining and processing capacity in the United States and partner countries.
- Invest in research and development: Develop new materials, recycling methods and manufacturing processes that could reduce dependence on vulnerable inputs.
The report also cautions that establishing new domestic capacity can take many years. Some materials and equipment require extensive development and qualification before they can be used in semiconductor production.
For this reason, supply-chain diversification is unlikely to happen quickly. Companies must balance the cost of maintaining alternative sources against the potential economic consequences of a sudden disruption.
Can the United States Build a Chip Supply Chain Without China?
Reducing dependence on China is different from eliminating every connection to Chinese production.
Semiconductor manufacturing is deeply international, and many products rely on materials, equipment and expertise spread across several countries. Rebuilding all these capabilities within the United States would require significant investment and could increase costs for manufacturers.
Even where domestic production is possible, companies may need time to develop suppliers, build facilities, recruit skilled workers and demonstrate that new products meet demanding technical standards.
A more practical strategy may involve identifying the inputs that pose the greatest risk and ensuring that those materials have multiple reliable sources. Some could be produced domestically, while others might be sourced from a wider group of allied and partner economies.
Strategic inventories could provide a buffer against temporary disruptions, while research into alternative materials could gradually reduce reliance on particularly vulnerable inputs.
Such a strategy would not remove all risks. Suppliers in different countries can still depend on the same upstream producer, and natural disasters, transport problems or geopolitical disputes can affect multiple locations simultaneously.
The key is to improve visibility into the supply chain and avoid situations in which a single point of failure can threaten production across a critical industry.
What the Findings Mean for the US-China Technology Rivalry
Semiconductors have become a major focus of competition between Washington and Beijing because they are essential to AI, telecommunications, advanced manufacturing and military systems.
The United States has sought to limit China's access to certain advanced chip technologies, while China has pursued greater technological self-sufficiency and retained a strong position in several upstream materials and processing industries.
The supply-chain findings show that technological competition involves more than deciding which country can manufacture the most advanced processor. It also involves control over materials, manufacturing equipment and the industrial capabilities required to keep factories operating.
That creates a complicated relationship between the two economies. Even as governments attempt to reduce strategic dependencies, companies may continue to rely on internationally distributed production networks built over decades.
The report does not suggest that China controls the entire US semiconductor supply chain. It shows that direct purchasing figures can understate certain dependencies, particularly when upstream materials and manufacturing locations are taken into account.
For policymakers, the implication is that technology security requires detailed supply-chain mapping, not just broad measures based on a supplier's country of headquarters.
The Road Ahead for America's Semiconductor Industry
The United States remains a major force in semiconductor design, manufacturing equipment and research. But maintaining that position requires a dependable supply of the materials and components needed throughout the production process.
The SIA report highlights an important limitation in how supply-chain exposure is commonly measured. Knowing where a supplier is headquartered provides useful information, but it does not necessarily reveal where its products are manufactured or where the materials inside them originate.
As demand for chips continues to grow, this distinction will become increasingly important for businesses and governments planning new manufacturing capacity.
The challenge is not simply to produce more chips within the United States. It is to build a supply network capable of supporting that production during periods of international tension, market disruption or restrictions on critical materials.
That will require cooperation between manufacturers, mineral producers, governments and international partners. It will also require patience, because alternative supply chains cannot always be created quickly or economically.
Ultimately, the report highlights a central reality of the modern technology economy: a country's semiconductor strength depends not only on the chips it designs or manufactures, but also on the global network of materials, equipment and industrial processes that makes those chips possible.
Key Facts
- Report: Understanding Dependencies in the U.S. Semiconductor Supply Chain.
- Publisher: Semiconductor Industry Association.
- Annual spending covered: Approximately $27 billion on semiconductor equipment and materials.
- Supplier headquarters: About 95% of spending goes to companies headquartered in the United States, Europe and Japan.
- China's share by supplier headquarters: Approximately 1%.
- China's share by production location: Approximately 5%.
- Critical minerals: China accounts for more than 90% of certain rare earths needed for chipmaking, according to reporting on the SIA findings.
- Main vulnerability: Suppliers in the United States and allied countries may depend on production and materials located elsewhere.
- Recommended responses: Domestic production, strategic inventories, allied supply chains, alternative mineral processing and research into new materials.
- Key takeaway: Semiconductor supply-chain risk cannot be measured accurately by supplier headquarters alone.
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