China has far deeper influence in America’s technology sector than is commonly understood—and rooting it out for security purposes will be no easy task.

Almost all fronts of the United States federal government have prioritized “de-risking” from China. The bipartisan issue is central in Congressional policymaking, and it is core to the Trump administration’s efforts for reestablishing the American manufacturing base.

Within the defense industrial base, the mission is even more critical, requiring a complete decoupling from Chinese supply chains to avoid using manipulated technologies that contain vulnerabilities in security equipment and to mitigate any supply chain risks caused by economic warfare. If China decides to halt exports of critical minerals or key components to American companies—as it has done many times in the past—America’s capacity for producing advanced military equipment can suddenly become crippled.

The Hidden Supply Chain Inside Defense Tech

The Pentagon’s dependence on commercial companies to produce drones, autonomous systems, advanced components and critical materials poses an increasingly potent threat to decoupling from China. Defense procurement has accelerated through the reenactment of the World War II-era Defense Production Act. The focus on accelerating production has led to a growing interest in defense tech startups. Yet even if companies are newly founded in the United States, it does not mean they are independent of Chinese supply chains. Instead, many firms peripheral to or entering the defense market were built with Chinese investment, Chinese-made components, and profited by selling to China. A certain piece of technology may be American at the surface level while remaining dependent on Chinese inputs underneath.

American firms’ relationships with China may have been commercially rational, but they create wartime risk. Washington must determine whether the companies expected to sustain American forces can adequately operate when China restricts components, disrupts supply chains, or exploits technology previously shared through commercial partnerships.

The administration has diversified its trade tools for reshoring supply chains—for example, recently using hybrid measures of import price floors combined with tariffs to change the polysilicon market. Still, manipulating trade should be a last resort for forcing compliance. It is a method with unpredictable results—often making the supply chain more complicated, and increasing the dangers to defense procurement rather than minimizing them. Companies need to shore up their supply chains on their own, paying heed to the danger of trade wars and supply chain shocks from China.

Examples of Chinese Economic Influence: Batteries and Rare Earths

The impact of Chinese control over supply chains is far from academic; several American companies have already been impacted.

Skydio is an American drone manufacturer founded in 2014 by a group of MIT graduates. It is now the largest producer of drones in the United States, and a core provider of equipment to the US military. Crucially for US defense purposes, the drones are manufactured within the United States, mostly with American components. But “mostly” is not entirely, and lack of access to a few critical Chinese components can do outsized damage to its drone production.

One such point of failure is batteries, which Skydio imported from China until the mid-2020s. In 2024, the Chinese government sanctioned the company, forcing it to ration its batteries and drastically limit its promised supply to consumers. The company was caught off guard by the cutoff; it has since adapted, but the underlying dilemma was the Pentagon’s inability to fully understand how many of its procurement needs faced chokepoints controlled by China.

US trade controls on polysilicon imports are one action that aims to get ahead before China takes advantage of these sorts of chokepoints. The measures are meant to protect companies like the Wacker Chemical Corporation, which manufactures military-grade silicone compounds, specialized elastomers, and aerospace-grade silicone rubbers. Yet Wacker’s manufacturing has been structured around Chinese supply, forcing the US administration to delay its trade tools until December. Even with trade measures, companies like Wacker may not be able to simply substitute for Chinese supply, leaving a glaring hole in solidifying the Pentagon’s procurement.

The US is trying to fix its mineral dependence on China, with few positive results so far. MP Materials, the only major US rare earth minerals company, made headlines after it negotiated a $45 million rare earths deal with the Pentagon, but historically it sent much of its output for processing to China. Chinese company Shenghe Resources was a major shareholder and dominant customer in MP before the Defense Department intervened with its ‘Mine-to-Magnet’ supply chain strategy. Losing its main customer significantly raised investment costs to the US government, and off-balanced MP’s company forecasts, as US magnet manufacturers are not readily available to take on MP’s supply. Thus, even though mines are domestic, American strategic assets remained commercially dependent on China without government intervention.

Chinese Capital and Advanced Manufacturing

Supply chain risks extend into the technology markets as well. Newer automation companies like Divergent Technologies, which condenses advanced manufacturing for engine parts and rocket components into a single unitary process, have benefited substantially from Chinese investments. Hong Kong’s Apollo Future Mobility Group was a major shareholder of Divergent Technologies until it was forced to sell its $100 million stake in 2024 due to Treasury Department regulations for national security. Despite publicly disclosed divestments from these companies, no such public disclosures exist from Hong Kong’s Horizons Ventures or Shanghai Alliance Investment (an investment arm of Shanghai’s municipal government); both were major investors in Divergent, while that company considered the Chinese automotive market as a major revenue driver.

Divergent has also been a favorite of the Defense Department’s new procurement strategy, so those divestments have probably already taken place, albeit quietly. That said, it is an interesting set of circumstances for the defense establishment to assess Chinese affiliations, especially during a time when defense procurement remains at significant risk from Chinese influence.

The Pentagon’s Technology Security Problem

The Pentagon’s strategy is rightly drawing companies from automotive manufacturing, robotics, artificial intelligence, additive manufacturing, and mining into the defense industrial base. However, by doing so, it may inadvertently increase the threat from China. Commercial innovation often comes carrying foreign dependencies that traditional defense reviews are not designed to detect. Exposure can run deep into today’s complex manufacturing process. Major Chinese investors hold governance and information rights, loosening the hold on intellectual property and making Chinese acquisition much easier. The US heavily depends on Chinese batteries, minerals, and components for electronic machinery. And even where these supply chains become restructured, past exposure still matters because divestment cannot retrieve knowledge already transferred, nor immediately replace an embedded supply chain.

The US is using trade tools like tariffs and price floors, but fundamentally the real solution is a better range of commercial options. Companies need to make the choice themselves to shore up the supply chain. What investments they take now will make or break the future of their government contracts in the long term.

America needs commercial innovation to rebuild its military production base. A company should not be considered “secure” simply because it is headquartered or manufactures its final product in the United States. The real question manufacturers need to ask is whether their technology, capital, and supply chain can survive the moment China stops behaving like a commercial partner and begins to act openly as an adversary. For defense technology companies, supply-chain resilience is necessarily part of technology security itself.

About the Author: Gia Kim

Gia Kim is a European-Korean researcher and policy analyst specializing in international trade and politics. Born to a South Korean mother and German father, she grew up between Seoul and Frankfurt, developing an early interest in how economic interdependence and geopolitical competition shape international relations. She earned a master’s degree in international political economy from the London School of Economics, where her research focused on supply-chain security.

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