Three years ago, Washington bet that restricting China’s access to advanced semiconductors would preserve American technological dominance. That bet is not paying off the way its architects imagined. A February 2026 analysis in American Affairs Journal found that China’s semiconductor manufacturing equipment sector has reached a level of maturity that would have seemed implausible just a few years ago. Huawei is building advanced fabrication facilities in Shenzhen targeting 7-nanometer commercial-scale production as early as this year. SMIC , the state-backed foundry, has repeatedly pushed foreign equipment past its rated specifications to achieve manufacturing nodes that the export controls were specifically designed to prevent. This is the uncomfortable logic of economic coercion: the more you restrict, the more you incentivize the other side to build what you’re withholding.
To be clear, the export controls imposed since 2022 , and progressively tightened through 2025, have had real effects. They disrupted China’s semiconductor supply chains, caused price spikes, and delayed access to the most advanced fabrication nodes by multiple years. Independent analysts broadly agree that the United States retains a meaningful lead in frontier chip design and production.
But a May 2026 CSIS assessment found a consistent pattern: every tightening of restrictions has prompted China to double down on state-backed domestic investment. China’s target is roughly 50 percent self-sufficiency in semiconductor equipment by 2025, up from 13.6 percent in 2024. Export controls have not halted that trajectory. By some measures, they’ve accelerated it. Semiconductors generated $627.6 billion in global sales in 2024. China is one of the largest single markets. American chipmakers barred from selling there lose revenue that would otherwise fund the research and development cycles that keep them ahead. The Information Technology and Innovation Foundation’s economic modeling found that sustained revenue losses reduce R&D investment, slow innovation cycles, and weaken the long-term competitive position of US firms. The controls are designed to protect American technological leadership. But by cutting into the revenues that fund American chip research, overly broad restrictions may erode the very lead they claim to be defending.
China’s state-backed firms do not face the same constraint. Beijing can backstop losses that market forces would punish. This is not a neutral observation. It points to a structural asymmetry in how the two sides are playing the game, where blanket commercial restrictions impose real costs on private firms while doing relatively little to slow a state-directed industrial policy with a decades-long time horizon.
Washington has begun to recognize this. A December 2025 policy reversal included a significant concession: allowing NVIDIA to resume shipping H200-class chips to China under a case-by-case licensing review, reversing the blanket denial posture that had been in place. National security hardliners objected. But the move reflects a pragmatic acknowledgment that restricting commercially available chips with broad civilian applications carries limited security benefit while imposing real costs on American industry.
What the walk-back reveals is that the original policy was not as carefully calibrated as its architects suggested. Controls that made sense for cutting-edge military-relevant systems were bundled with restrictions on hardware with legitimate commercial uses. The result was a blunt instrument presented as precision policy.
The semiconductor question does not exist in isolation. In healthcare, Chinese manufacturing is deeply embedded in supply chains for medical devices, pharmaceutical ingredients, and diagnostic equipment. A 2025 disruption in active pharmaceutical ingredient supply underscored just how much of American drug manufacturing depends on Chinese chemical production. No export control regime has addressed this dependency.
In AI and digital infrastructure, Chinese firms are deploying sector-specific models in logistics, healthcare diagnostics, and manufacturing across Southeast Asia and other fast-growing markets. They are competing not on headline model performance, but on embedded, industry-specific integration. The technology competition is not only about who has the largest model. It is about whose systems are most deeply woven into the infrastructure of the world’s fastest-growing economies. No chip export control addresses that either.
If the goal is genuinely to protect American technological capacity—rather than to perform strategic anxiety through trade restrictions—three things need to change. First, export controls should be calibrated by actual security risk, not by the nationality of the buyer. A Chinese civil engineering firm purchasing legacy semiconductors for infrastructure control is not the same security concern as the People’s Liberation Army acquiring GPU clusters for weapons simulation. Policy that treats them identically is not rigorous but reflexive.
Second, domestic investment in research capacity needs to be sustained—and scaled. CHIPS Act funding was a meaningful start. But it cannot substitute for the revenue base being eroded by overbroad restrictions on the very firms it is meant to support. One cannot simultaneously cut the funding streams and promise to out-innovate.
Third, the framework needs to distinguish between managed engagement and capitulation. In legacy semiconductors, industrial AI, and healthcare technology, U.S. and Chinese capabilities are often genuinely complementary. Treating all technology trade as an extension of military competition forecloses arrangements that could serve both economic and stability interests.
The semiconductor rivalry between the United States and China is real, consequential, and will shape the technological landscape for the next decade at minimum. CSIS analysts argue that the United States holds genuine leads in frontier chip design, advanced manufacturing equipment, and the research ecosystem that generates next-generation capabilities. The question worth asking is whether current policy is protecting that lead—or gradually undermining it by cutting revenues, accelerating Chinese domestic investment, and conflating commercial competition with existential threat.
A November 2026 policy deadline offers an opening to move from reactive restriction to something more strategic: a framework that distinguishes between the technologies and transactions that genuinely threaten security and those that simply compete. The difference matters. So far, U.S. policy has not consistently made such a distinction.
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