The Limits of Chip Export Controls in Meeting the China Challenge

The U.S. government and those of its allies have imposed and progressively tightened controls on the export of semiconductor technology, devices, and tools to China in an effort to maintain U.S. leadership in this critical sector. China has responded with an all-out effort to stimulate domestic chip innovation capabilities and eliminate dependency on foreign sources. The outcome of the chip innovation race will determine which country leads in the development and application of AI, with major strategic and economic security implications.

Preventing China from acquiring the most advanced chip technology makes sense from a national security perspective, but export restrictions alone cannot substitute for comprehensive industrial and research policy measures necessary to ensure U.S. leadership in semiconductor design, production, and infrastructure. Moreover, the imposition of export controls has resulted in China doubling down on its existing deeply subsidized development efforts that could well produce breakthrough technologies capable of leapfrogging the current state of the art, potentially destabilizing the U.S. semiconductor ecosystem.

U.S. Export Controls

In October 2022, the Biden administration imposed controls on the export of designated types of semiconductors, some computer systems and assemblies containing those devices, and equipment used to fabricate those devices to China and to certain named Chinese “entities.” The stated purpose of the controls was to limit China’s ability to obtain semiconductor manufacturing capabilities to produce ICs (packaged or unpackaged) for uses that are contrary to U.S. national security and foreign policy interests.” As detailed in a report by CSIS’s Greg Allen, the administration had several strategic goals:

• Impair Chinese capabilities in AI and supercomputing by cutting off access to high-end chips.
• Prevent China from designing and making its own high-end devices by blocking access to advanced Western design tools and chipmaking equipment.
• Prevent China from developing its own advanced semiconductor manufacturing equipment by cutting off access to Western components.

The October 2022 controls were tightened in October 2023 and December 2024. Following a major diplomatic effort, similar export controls were implemented by U.S. allies, limiting chip product and technology transfers to China. In March 2025, the Trump administration imposed additional chip export restrictions, blacklisting dozens of Chinese entities from trade in semiconductors and other advanced strategic technologies. In the immediate aftermath of the first rounds of chip export controls, it was evident that they were having a number of effects:

• The implementation of controls significantly disrupted China’s semiconductor ecosystem, causing price spikes for some device types and forcing workforce reductions.
• However, as noted, the restrictions also prompted China to implement an all-out, government-backed effort to improve the country’s self-sufficiency in all aspects of semiconductor design and production, an effort that has already resulted in a number of startling achievements.
• Semiconductor device and equipment makers based in the United States and allied countries lost substantial revenues as a result of the curtailment of their China sales, and as a result of their diminished presence in China, are reportedly less able to track developments in that country’s chip industry to the same extent as previously. The controls also reduce the revenues, which are critical to funding the high levels of research and development that characterize the industry.

Circumvention

While the controls have had an impact, it has also become apparent that export controls cannot halt all exports of chip technology. Restrictions are potentially effective with respect to chipmaking equipment—which is commonly produced in small lots, is heavy, and is technically challenging to transport, install, and maintain. But semiconductor chips are produced by the millions and are small and easily concealed, and design software can very likely be moved across borders undetected. Chinese enterprises have already proven adept at smuggling proscribed chips through various forms of subterfuge.

• Huawei reportedly used shell companies to trick the Taiwanese chip foundry TSMC into manufacturing an astonishing total of 2 million computer chiplets for its flagship Ascend 910 AI processors. Huawei will reportedly package two of these chiplets together to build its next generation Ascend 910C processors. TSMC halted production for the shell companies immediately upon discovering the fraud, but this is not an isolated case.
• Semiconductor devices are very small and often incorporated in end-use equipment, making it possible to utilize ruses to move them across borders undetected. In 2024, a ring of three individuals reportedly formed a company called “Luxuriate Your Life,” which bought 390 million dollars worth of servers from Dell and Supermicro containing banned Nvidia graphics-processing units (GPUs). The servers were then smuggled into Malaysia. The three men are now being charged by Singapore authorities with using false pretenses to obtain the servers from Dell and Supermicro.

These incidents, which came to light through happenstance, suggest the existence of larger traffic in smuggled high-end devices. In 2024, the New York Times reported on an active trade in China in controlled AI technology, noting that in a “bustling market in Shenzhen . . . chip vendors reported engaging in sales involving hundreds or thousands of restricted chips.”

China Seeks Chip Self-Sufficiency

More importantly than smuggling, China is responding to U.S. and allied export controls with a whole-of-nation effort to make China independent of Western semiconductor technology. China has already demonstrated that export controls will not impede its capacity to innovate over the longer term. In 2019, the first Trump administration cut off Huawei’s access to U.S. technology, including semiconductors, a move that appeared to consign the Chinese telecommunications giant to irreversible decline. Instead, Huawei launched an effort to wean itself from reliance on U.S. technology, which has made rapid strides:

• By 2024, Huawei launched new products featuring advanced semiconductors and was developing 5G mobile network infrastructure.
• China’s most advanced chipmaker, Semiconductor Manufacturing International Corporation (SMIC), is reportedly producing chips designed by Huawei’s design subsidiary, HiSilicon, the 5G-capable Kirin 9000C.
• Huawei’s current generation smartphone, the Pura 70 series, incorporates 33 China-sourced components and only 5 sourced from outside of China.
• Huawei is currently phasing outS. hardware and software from applications in its personal computers, which until now have been based on Qualcomm and Intel devices.

China’s drive for self-sufficiency in semiconductors is by no means limited to major players like Huawei and SMIC; it extends to previously little-known companies:

• ChangXin Memory Technologies has been undertaking major investments in dynamic random access memory production, seeking to break the near monopoly held by South Korean and U.S. makers: “In just five years and in the face of mounting U.S. restrictions, China’s share of the global memory chip market has gone from virtually zero to 5 percent—and industry insiders say it could double [in 2025].”
• In February 2025, Alibaba Group’s research arm unveiled the C930 central processing unit, based on “RISC-V instruction set architecture, countering U.S. tech restrictions.” The C930 reportedly “meets the requirement for RISC-V systems in high-performing applications.” For Chinese chip designers, the RISC-V architecture is becoming a viable alternative to proprietary versions, including those of Arm Holdings and Intel.
• Shanghai State-owned Capital Investment, a government investment entity, is spearheading the launch of Biren Technology to develop GPUs to “replace advanced chips from Nvidia and Advanced Micro Devices,” which are barred by U.S. export controls from selling their most advanced GPUs to Chinese customers; “The move showed Shanghai’s determination to develop a fully domestically produced, independent and controllable computing system, using made-in-China chips.”

A New Priority: Semiconductor Research

Until recently, the Chinese government has focused the bulk of its resources on supporting the chip manufacturing sector, assuming continued access to Western technology. To counter the current U.S. policy, it is now committing massive resources to the promotion of indigenous semiconductor research. China has already made significant progress. At present, it is producing twice as many research papers as the United States on chip design and production, according to the Emerging Technology Observatory at Georgetown University. These efforts are destined to grow, insofar as China sees this competition as a struggle for national dominance, while the U.S. debates whether its companies merit support in the global “market” for advanced semiconductor development and manufacture.

The recent Chinese advances underscore a basic limitation in current U.S. policy. Export controls are relevant only so long as the United States and its allies possess chip technologies that China wants and needs. But it is rapidly becoming evident that Chinese firms do not necessarily require access to the most advanced Western technologies to achieve comparable chip competencies via new research or simply “workarounds.” The latter may not be as efficient—or as profitable—but they will enable competitive, “nearly as good” products able to meet Chinese needs while capturing market share and the revenue it entails to fund further investment.

Currently, Chinese engineers are undertaking novel approaches to chip design and production, which in some instances may well yield breakthroughs that both surprise and potentially destabilize the U.S. and allied chip industries:

• The world was startled in January 2025 when a little-known Chinese startup, DeepSeek, unveiled an open-source research model, R1, which roughly matches the capabilities of advanced models from Google, OpenAI, Meta Platforms, and Anthropic, raising investors’ concerns about the billions of dollars being poured into research and capital investments in AI by U.S. tech giants. Wei Sun, an industry analyst, observes that “By achieving cutting-edge results with fewer resources, DeepSeek highlights the potential of efficient innovation over sheer scale, marking a turning point in the AI race.”
• In March 2025, a team of researchers at Peking University, an institution with extensive ties to the semiconductor industry, announced that they had used new materials to shatter chip performance limits, enabling China to “change lanes in the semiconductor race by circumventing silicon-based roadblocks entirely.” The team, led by chemistry professor Peng Hailin, said that their 2D transistor could operate 40 percent faster than TSMC’s 3-nanometer devices while consuming 10 percent less energy.
• In March 2025, “In a breakthrough which could redefine the future of computing,” Chinese scientists from Peking University and Beijing University of Posts and Telecommunications disclosed that they had developed the world’s first carbon nanotube-based chip “capable of running artificial intelligence tasks using a novel ternary logic system, leapfrogging today’s binary-dependent technology.” Carbon nanotube devices have the potential to “outperform silicon in speed, efficiency and scalability.”

These accomplishments highlight the need to monitor and assess the progress of China’s industry and the supportive policies and financial support for the industry. More information is needed, given that the scale, duration, and diversity of China’s efforts in this critical technology are not fully appreciated by U.S. policymakers.

No Cold War Analogy

Some U.S. policymakers may well view current chip export control policies through the lens of the largely successful effort to limit the flow of sensitive technologies to the Soviet Union during the Cold War competition. But that analogy simply does not hold. Many of the technologies at issue in the Cold War were usually physically large—for example, aircraft engines, discrete, and slow to evolve—the opposite of today’s semiconductors. Moreover, at the time, U.S. trade with the Soviet Union was largely limited to U.S. exports of grain, a factor which greatly facilitated the enforcement of controls on technology exports. Supply chains have become so intertwined since the United States extended permanent normal trade relations to China in 1992 that it is often difficult to discern national boundaries, vastly complicating any effort to limit the flow of technology. Before, China displayed weak, if not backward, innovation capabilities, even for copying U.S. advances in information technologies. Now, China has become an innovation juggernaut in information technology and many other related sectors.

Moving from “Protect” to “Promote”

Western chip export controls have had some success in that they briefly set back China’s developmental efforts in semiconductors, albeit at some cost to the United States and allied firms. But current trends underscore that they are at best a short-term palliative for the long-term strategic challenge posed by China in this key sector. The United States and its allies can only address that challenge successfully through comprehensive support for their own chip industries, support that may well exceed the normal parameters of U.S. policy. The unprecedented chips legislation recently enacted in the United States and European Union is part of the response, but far more is needed, particularly expanded public investments in relevant semiconductor research to keep and develop a strong pipeline of well-trained engineers while supporting Western chip firms’ efforts to remain at the technological cutting edge. In the United States, a positive step is the newly formed National Center for the Advancement of Semiconductor Technology, which will be crucial to such an effort, promoting industry-government research and development via the National Semiconductor Technology Center. This effort and related programs will need substantial and sustained public support if the United States and its allies are to successfully meet this global challenge. It is a challenge the United States must meet.

Sujai Shivakumar is the director and senior fellow of Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Charles Wessner is a senior adviser (non-resident) with Renewing American Innovation at CSIS. Thomas Howell is an international trade attorney specializing in the semiconductor industry and a consultant with CSIS Renewing American Innovation.

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