A proposed policy for China involves renting access to US-controlled chips (e.g., in Malaysian data centers) instead of selling them outright. This allows Chinese companies to benefit commercially while giving the US the ability to "turn off" the chips if they are misused for military purposes.

Policymakers are not treating all memory chips equally. A bifurcated strategy is emerging: strict controls and allied partnerships for high-end AI chips (HBM), versus more flexible options like differentiated licensing for lower-end commodity memory used in consumer goods and autos.

The global supply chain for cutting-edge AI chips is a major chokepoint, ideal for governance. Three companies design them, one (TSMC) manufactures over 90%, and one Dutch firm (ASML) makes the essential machinery. This concentration makes tracking and controlling compute resources feasible for a global coalition.

Instead of pure defense, a proactive, alliance-based 'counter-coercion' strategy is needed. This involves sharing industrial intelligence to identify and hold an adversary's own economic choke points at risk, creating a credible threat of retaliation that deters them from using economic coercion in the first place.

The central geopolitical and economic conflict of the modern era revolves around the control of semiconductor chips and fabrication plants (fabs). These have surpassed oil as the most critical strategic resource, dictating technological and military superiority.

U.S. policymakers are focused on supply chain resilience and de-risking from geopolitical adversaries. This strategic imperative means they will favor creating trusted capacity over actions that might lower memory chip prices quickly, such as loosening export controls on advanced technology.

While headlines focus on advanced chips, China’s real leverage comes from its strategic control over less glamorous but essential upstream inputs like rare earths and magnets. It has even banned the export of magnet-making technology, creating critical, hard-to-solve bottlenecks for Western manufacturing.

Facing China's export restrictions on rare earth metals, the U.S. immediate strategy is "ally-shoring": striking a major deal with Australia. This secures the supply chain through geopolitical partnerships as a faster, more pragmatic alternative to the long process of building domestic capacity from scratch.

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.