What is China’s stance on AI Supply chain? Isn’t the US working to diversify dependence on China? Who needs who?

China's position: build the whole stack at home

China's stance is blunt and explicit. The key Chinese policy phrase 自主可控 (zìzhǔ kěkòng) signals "autonomous, controllable" industrial chains, which is far stronger than the official English translation of "self-supporting and risk-resilient." What that phrase means in practice is that Beijing wants an AI supply chain it controls end to end, from the raw chip designs to the factories that make them, so that no foreign government can flip a switch and cut it off.

U.S. export controls sent shockwaves through China's party-state system and caused Chinese policymakers to prioritize semiconductor self-sufficiency, not only in chip production but across the entire semiconductor supply chain. The response has been a whole-of-nation effort. Chinese domestic chips made up nearly 41% of China's AI chip market, with approximately half of those sales coming from Huawei. That is a dramatic shift from just a few years ago, when Nvidia held a 90% or more share of China's AI chip market before 2023.

Supply chain resilience is paramount: the stated goal is an "independent and controllable" ecosystem that can train, deploy, and scale without foreign choke points.

The US position: diversify, but it is harder than it sounds

The United States initiated its most aggressive diversification effort through the CHIPS and Science Act, attracting investments including TSMC's $165 billion complex in Arizona, Intel's $100 billion U.S. expansion, and SK Hynix's $3.87 billion advanced packaging plant in Indiana.

The U.S. bars AI chip designers like Nvidia and AMD from selling their most powerful chips to China. The most advanced chip that can currently be exported to China is the Nvidia H200, and even those sales are heavily regulated.

But the diversification has limits. The result is a supply chain that has largely decoupled from China for finished computing hardware. That is a necessary first step, but it is not reshoring. The United States still imports more than 95% of its servers, and a single disruption in the Taiwan Strait would expose how little the diversification strategy has done to reduce actual import dependence.

Who needs who more?

Honestly, both sides need each other more than either wants to admit, and both are paying a real price to reduce that need. Geopolitical tensions will persist, but the economic reality of interdependence remains the most powerful stabilizing force, and the focus is shifting from "decoupling" to "managed dependency," because the cost of total separation is too high for any global power to bear.

China controls rare earths, battery supply chains, and massive manufacturing capacity. The Trump administration aims to secure continued Chinese exports of rare earths in exchange for allowing some U.S. chip sales. The U.S. controls the most advanced chip designs, the software tools needed to design chips, and the key ally in Taiwan, which manufactures the world's most advanced semiconductors. Taiwan's unmatched capabilities give the United States a strong interest in the island's security, providing Taiwan with its proverbial "silicon shield."

What you are watching is two giant economies trying to untangle decades of deep interdependence, at speed, without breaking the very technologies both need to compete. Neither will fully succeed in the near term, which is exactly why summits like the Trump-Xi dinner matter. The leverage runs in both directions, and the side that manages that tension without blinking first ends up in the stronger position going forward.