How China Turned US Trade Compliance Into a Supply Chain Risk

China's new pharmaceutical supply chain regulations have transformed a chronic vulnerability into an acute compliance crisis, one that can put US drug companies in direct conflict with the laws they are required to follow.

In April, Beijing issued the Regulations on Industrial and Supply Chain Security, followed by companion rules on countering foreign extraterritorial jurisdiction. Both took effect immediately, with no transition period. Together, they give Chinese regulators broad authority to investigate and impose countermeasures, including import and export restrictions, against any company whose compliance with US, EU or UK law is deemed to threaten China's supply chain stability. According to an analysis by Mayer Brown, actions that are routine under US law, such as auditing a Chinese supplier, pausing shipments, and conducting forced labor due diligence under the Uyghur Forced Labor Prevention Act, can now trigger Chinese investigations and placement on a "malicious entity" list.¹

For the US generic drug industry, which sources a significant portion of its active pharmaceutical ingredients from Chinese manufacturers, the implications are significant. Estimates of US reliance on Chinese-made API vary considerably depending on methodology, ranging from 8%, to 47%. According to Brookings, some reports claim that China controls 80-90% of the global supply of API.²

The structural barriers are significant. Generic medicines account for approximately 90% of US prescriptions but only 13.1% of total drug spending — a cost dynamic that leaves manufacturers with little margin to invest in domestic capacity, according to a 2025 CSIS analysis of US pharmaceutical manufacturing resilience.³ That same analysis found that tariffs and executive orders alone are insufficient to overcome the regulatory complexity, permitting delays, and workforce gaps constraining domestic pharmaceutical manufacturing.³

To unpack China’s supply chain regulations, retaliation risk, and what it means for US companies, Pharmaceutical Commerce spoke with Gerren McHam, vice president of government and external affairs at the API Innovation Center, which partners with the Department of Health and Human Services to assist in reshoring domestic pharmaceutical production. In this installment, McHam addresses what the new Chinese regulations mean operationally for supply chain teams and what combination of investment, demand signaling and procurement reform is needed to build a domestic API base that can actually hold.

References

1. Mayer Brown. "China Expands Its Playbook: New Industrial Supply Chain and Counter-Extraterritoriality Regulations Create Direct Compliance Conflicts for Multinationals." May 5, 2026. mayerbrown.com
2. Brookings Institution. "US Drug Supply Chain Exposure to China." brookings.edu
3. Wessner C, Sharma S. "Rebuilding Resilience in U.S. Pharmaceutical Manufacturing." Center for Strategic and International Studies. September 29, 2025. csis.org