Major US technology policies, such as the October 2022 semiconductor export controls, are not sudden shocks. They are often telegraphed years in advance through influential government commission reports, like the one from the National Security Commission on Artificial Intelligence (NSCAI), which provided the blueprint for these actions.
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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.
Evaluating export controls by asking if China is still advancing is the wrong metric. The true test is the counterfactual: where would China be *without* the restrictions? The controls act as a significant handicap in a competitive race, not a complete stop, and it's highly likely China would be ahead of the U.S. in AI without them.
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.
The US government revived the name "Operation Gatekeeper," once used for a 90s border project, for a new mission: cracking down on illegal AI chip smuggling to China. This demonstrates how semiconductors have become a national security priority on par with physical border control.
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.
The most dangerous policy mistake would be reverting to a 'sliding scale' that allows China to buy chips that are a few generations behind the cutting edge. In the current era of AI, performance is aggregatable. China could simply purchase massive quantities of these slightly older chips to achieve compute power equivalent to frontier systems.
The US government's reversal on Nvidia H200 chip sales to China, now with a 25% tax, indicates a strategic shift. The policy is no longer a complete blockade but aims to keep China one generation of chips behind while generating significant tax revenue for the US.
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.
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.
