Epoch AI Research: Why China Faces Higher Semiconductor Supply Shock Exposure Than the US

When discussing semiconductor supply chain risks, attention often focuses on who manufactures the chips. However, Epoch AI researcher Daniel Carey argues in a report published on October 6, 2026, that true economic vulnerability depends on how much semiconductor value is embedded in a country's final demand. By disaggregating international input-output (IO) tables, the research finds that China is significantly more exposed to semiconductor supply disruptions than the United States.

Standard international IO data bundles semiconductors into broader electronics categories, obscuring specific dependencies. Carey adapted methods developed by the OECD team of Haramboure, Lalanne, Schwellnus, and Guilhoto to separate semiconductors from other electronic components and further distinguish between processors and memory using customs data. The results show that in 2022, every $1,000 of Chinese final demand generated $15.2 in revenue for semiconductor producers, compared to $5.7 for the same amount of American spending—a factor of 2.7. This indicates that a larger share of China's consumption and investment costs is tied to chip production.

To quantify potential impacts, the study calibrated a general-equilibrium trade model to simulate a combined scenario of reduced Taiwanese productivity and a China-West trade decoupling. In this model, representing a two-to-three-year adjustment period, advanced processor prices in China are estimated to rise 17-fold, causing a 3% fall in real gross national expenditure (GNE). In contrast, US prices rise by about 20%, with GNE falling only 0.6%. This gap persists across robustness checks, although exact magnitudes vary with parameter assumptions.