The strategy of selling advanced tech to rivals like China to create dependency is flawed. The example of Tesla in China, which arguably gave BYD a 'paid education' in EV manufacturing, shows this approach can backfire. Instead of addiction, it can accelerate a competitor's ability to learn, iterate, and ultimately leapfrog the original innovator.
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To prevent its suppliers from going bankrupt if contracts were cut, Apple mandated that no supplier could be more than 50% dependent on its business. This forced highly-trained manufacturers to find other customers, directly enabling the rise of sophisticated Chinese smartphone brands like Huawei and Xiaomi.
Instead of a total ban, a more strategic approach is to "slow ball" an adversary like China by providing them with just enough technology. This keeps them dependent on foreign suppliers and disincentivizes the massive state investment required to develop their own superior, independent solutions.
The decision to allow NVIDIA to sell powerful AI chips to China has a counterintuitive goal. The administration believes that by supplying China, it can "take the air out" of the country's own efforts to build a self-sufficient AI chip ecosystem, thereby hindering domestic firms like Huawei.
Counterintuitively, U.S. and global auto firms need to collaborate with Chinese suppliers to reduce strategic dependency. The model involves onshoring Chinese hardware and manufacturing expertise while maintaining national control over sensitive AI software and networks, creating a strategic "co-opetition."
Restricting sales to China is a catastrophic mistake that creates a protected, trillion-dollar market for domestic rivals like Huawei. This funds their R&D and global expansion with monopoly profits. To win the long-term AI race, American tech must be allowed to compete everywhere.
While China bans many US tech giants, it welcomed Tesla. A compelling theory suggests this was a strategic move to observe and learn Tesla's methods for mass-producing EVs at scale, thereby accelerating the development of domestic champions like BYD, mirroring its past strategy with Apple's iPhone.
Unlike the U.S. government's recent strategy of backing single "champions" like Intel, China's successful industrial policy in sectors like EVs involves funding numerous competing companies. This state-fostered domestic competition is a key driver of their rapid innovation and market dominance.
Contrary to their intent, U.S. export controls on AI chips have backfired. Instead of crippling China's AI development, the restrictions provided the necessary incentive for China to aggressively invest in and accelerate its own semiconductor industry, potentially eroding the U.S.'s long-term competitive advantage.
To mitigate its own risk, Apple's "50% rule" required suppliers to find other customers. This policy forced them to share advanced manufacturing processes co-developed with Apple, directly enabling the rise of Chinese smartphone rivals like Xiaomi and Huawei.
U.S. export controls on advanced semiconductors, intended to slow China, have instead galvanized its domestic industry. The restrictions accelerated China's existing push for self-sufficiency, forcing local companies to innovate with less advanced chips and develop their own GPU and manufacturing capabilities, diminishing the policy's long-term effectiveness.
