The pro-export argument for selling NVIDIA chips to China is strategic: flooding their market with good-enough, affordable chips makes it uneconomical for their domestic industry to compete. This fosters dependency on the U.S. ecosystem and can slow their independent technological progress.

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.

The US has reversed its strict chip controls on China. Instead of a complete ban, it now allows NVIDIA to sell advanced H200 chips but with a 25% tax, effectively turning a geopolitical restriction into a significant revenue stream for the US Treasury, estimated at $5 billion annually.

Despite the U.S. easing export controls, China's government may restrict imports of NVIDIA's advanced chips. Beijing is prioritizing its long-term goal of semiconductor self-sufficiency, which requires creating a protected market for domestic firms like Huawei, even if Chinese tech companies prefer superior foreign hardware.

The "Operation Gatekeeper" bust uncovered a massive illegal AI chip smuggling operation into China. This indicates that prior to the recent policy change, a significant black market existed to circumvent US export controls, suggesting high, unmet demand that official numbers don't capture.

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.

A nation's advantage is its "intelligent capital stock": its total GPU compute power multiplied by the quality of its AI models. This explains the US restricting GPU sales to China, which counters by excelling in open-source models to close the gap.

China's refusal to buy NVIDIA's export-compliant H20 chips is a strategic decision, not just a reaction to lower quality. It stems from concerns about embedded backdoors (like remote shutdown) and growing confidence in domestic options like Huawei's Ascend chips, signaling a decisive push for a self-reliant tech stack.

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.