Analyst Chris Miller argues China's core challenge is manufacturing, as it lacks the advanced lithography tools monopolized by ASML. The US and Taiwan are projected to produce 30 times more quality-adjusted AI chips, a gap unlikely to close soon.

Reports of China building a working EUV lithography machine are misleading. The effort appears to be an assembly of smuggled components from ASML's existing supply chain, not a story of domestic innovation. This frames the primary challenge as one of export control evasion rather than a rapid technological leap by China.

Blocked from buying advanced EUV lithography machines from ASML, China is not just trying to build its own. It's aggressively investing in "leap ahead" technologies like free electron lasers. This strategy aims to bypass the current generation of technology entirely, creating a new competitive front in the semiconductor war.

The primary constraint on AI scaling isn't just semiconductor fabrication capacity. It's a series of dependent bottlenecks, from TSMC's fabs to the limited number of EUV machines from ASML, and even further down to ASML's own specialized suppliers for components like lenses and glass.

To counter US threats of restricting chip access, an allied coalition can leverage its own critical positions in the upstream semiconductor supply chain. By controlling assets like ASML's manufacturing equipment or Japanese/Korean high-bandwidth memory, they can create the conditions for a mutually beneficial deal on chip allocation.

By 2030, China is expected to have a fully indigenous DUV lithography supply chain, enabling mass production of chips on older process nodes. However, for the most advanced EUV technology, they will likely only have working prototypes and will still be struggling with the 'production hell' required for high-volume manufacturing.

China's semiconductor strategy is not merely to reverse-engineer Western technology like ASML's. It's a well-funded "primacy race" to develop novel, AI-driven lithography systems. This approach aims to create superior, not just parallel, manufacturing capabilities to gain global economic leverage.

Existing export restrictions left older DUV immersion systems unrestricted, allowing China to double its installed base. Halting all DUV tool flows could cap China's domestic chip production at roughly 10 million chips annually, maintaining a massive US compute advantage.

The effectiveness of US export controls on advanced AI chips stems from a deep technological gap. According to China's own projections, it won't be able to domestically produce chips as powerful as those the US is restricting until 2028, creating a significant and lasting strategic advantage for democracies.