The US’ semiconductor export-control policy is built on a fundamental contradiction i.e. through its policy, the US hopes to delay China’s capability in achieving self-sufficiency in the semiconductor sector, yet depriving China of advanced nodes is only accelerating the conditions for China’s breakthrough in semiconductor development. The Trump Administration is hence operating on a fine line of appeasing its allies (including Taiwan, the Netherlands, and importantly, the US-based chip giant NVIDIA) while suppressing China’s capabilities to produce advanced nodes. Each of these actors plays a significant role in ensuring that the US remains the dominant state in designing advanced nodes and the relevant equipment.
The Paradox of Restriction
The US’ main goal is to hamper China’s AI and chip-making ambitions as much as possible, however its policies have generated mixed results. Since the onset of the trade war, China has invested billions into semiconductor innovation, with SMIC – the semiconductor pioneer in China – being the leading beneficiary. Thus far, SMIC has already managed to produce the 7nm chips, which Intel has just managed to manufacture in 2022, demonstrating China’s resolve to navigate the restraint the US has imposed on them instead of being passively shaped by it. Notably the US has banned the export of the Extreme UltraViolet Lithography equipment (EUV) to China, only allowing China to import the less advanced DUV. This requires the continued alignment of the Netherlands, as ASML, a Netherlands-based company, is the only company manufacturing the EUV, adding another layer of complexity to the US’ strategic plan of containing China’s AI and semiconductor ambitions due to the commercial costs its ally must reluctantly endure. China, on the other hand, defied the US export control on EUV against the odds, adopting a technique known as multi-patterning to override the inadequacy of the DUV equipment and eventually managed to develop the 7nm node. This demonstrates a consistent pattern of resilience from China, which becomes a sore point for US export control policy, as strangling China’s access to the H100 advanced nodes paradoxically taught China to survive without the US supply chain.
Commercially, the US’ constraint on China has been chipping into NVIDIA’s revenue, with NVIDIA losing billions in projected revenue from its China market following restrictions on its advanced AI chips. The loss to the US semiconductor industry does not purely translate in terms of revenue loss – it is also taking a toll on NVIDIA’s ability to reinvest its profits into R&D and furthering US dominance in chip innovation. In view of this loss, Jensen Huang, the CEO of NVIDIA, has negotiated a relaxation of the US’ semiconductor export control – which Trump has agreed to and has since rescinded its ban on the export of H20 chips to China, a less advanced version of the H100 chips, for which the ban continues. Trump’s willingness to tone down its comprehensive export control shows the thin line the administration has to tread in keeping its ally (NVIDIA) content, while maximising its containment strategy on China. To make things worse, the Trump administration has just rolled back its subsidy attached to the CHIPS and Science Act, which will provide breathing room for China to develop its chip independence given the CCP government’s generous financial support for SMIC and Huawei that amounts to billions. Hence, it begs the question: is the US doing enough to slow down the development of
China’s semiconductor industry, or is it doing too much, and in the process incurring huge costs that lead to an adverse effect of shortening its dominance instead?
A key supply chain chokepoint
Currently, TSMC – a Taiwanese chip-making company – is manufacturing more than 90% of the world’s advanced nodes, monopolising the manufacturing section of the semiconductor supply chain. This concentration is concerning to the US due to Taiwan’s geographical location and sovereign vulnerability – the island is prone to natural disasters, and escalation in the Taiwan Straits could lead to a loss of control over the critical TSMC plant in the event of Chinese mobilisation. This vulnerability is gradually being tackled by the US, with the first step being a $6.6 billion direct funding from the US government under the Biden-Harris Administration as an incentive for TSMC to launch a plant in Arizona. However, the Trump Administration’s rollback of CHIPS Act subsidies exposes a direct contradiction: the US recognises TSMC concentration as a strategic risk while simultaneously defunding the policy designed to mitigate it.
The US is buying time… but for how long?
As of now, the US semiconductor export control is working. China is crippled by its inability to import the EUV – a critical equipment for the development of chips more advanced than the 7nm node, and also its inability to import the H100 NVIDIA chips, which would allow it to enhance its AI development and its military technological capabilities. In this sense, the US’ export control is serving its purpose in the short term, but for how long and for what?
If the answer is time to rebuild domestic manufacturing capacity, the rollback of CHIPS Act subsidies directly undermines that objective. If the answer is time to maintain allied cooperation, the commercial costs borne by ASML and the concessions made to NVIDIA are eroding that coalition. If the answer is time to develop a more sustainable strategy for technology competition with China, that strategy has not yet materialised. As of now, Huawei and SMIC remain behind NVIDIA at the frontier, but the trajectory is set. The US will no longer hold complete dominance in the semiconductor industry, it must admit that China is building a parallel semiconductor ecosystem at an impressive pace. Right now, every additional restriction narrows the window in which US firms can still sell to China, and widens the space in which Chinese suppliers can replace them. The US is not choosing between containment and commerce, it is pursuing both yet failing to make either work in its favour.