SouthernWorldwide.com – One of President Donald Trump’s objectives during his visit to China is to help secure America’s ongoing technological leadership. A significant concern is the potential for China to pilfer American technology.
However, at times, we inadvertently hinder our own tech companies through misguided domestic policies.
Export controls serve as a prime example of this problem. These controls pose a threat to U.S. dominance and restrict the market access for American-made tech products. Politicians and bureaucrats have opted to dictate the global semiconductor trade, believing they, rather than the free market, are best equipped to manage it. This approach is proving to be ineffective.
While we are still ahead in the chip war against China, the margin is slim.
Despite years of strict export controls that have severely impacted NVIDIA and AMD’s sales to China, recent data indicates that the U.S. lead in artificial intelligence (AI) has nearly vanished. Rather than slowing Beijing’s progress, our actions have effectively subsidized the development of their domestic chip manufacturing by blocking or taxing their American competitors. Consequently, the Chinese government has channeled a substantial $47.5 billion into a state-backed semiconductor fund.
Historical global experience demonstrates that government is a poor investor, suggesting that a significant portion of China’s industrial policy funds will likely be misallocated.
The critical question, from both an economic and national security standpoint, is how can we maintain our technological edge?
By denying our most successful chip manufacturers access to a vast foreign market, Washington is imposing what can be termed the “Doomer Tax.” American chip companies are experiencing a loss of $50 billion in annual sales. Considering their healthy 70% profit margins, this translates to a staggering $35 billion in lost profits. This, in turn, results in an annual loss of approximately $7.5 billion in corporate tax revenue for the U.S. Treasury. Furthermore, it reduces the capital available for these AI companies to invest in the development of next-generation chips.
A simple analogy can illustrate the irrationality of the current strategy. Imagine an American airline lobbying the federal government to prohibit Boeing from selling aircraft to a foreign airline simply to avoid competition. Surely, such a request would be met with widespread ridicule.
Yet, this is precisely the scenario unfolding in the AI sector. A small group of AI software companies, notably Anthropic, which expresses concerns about Chinese AI competition, are lobbying Washington to prevent those companies from acquiring American chips. However, if Anthropic wishes to restrict the sale of its own chips, it has the prerogative to do so, especially if there are legitimate concerns about intellectual property theft.
When our government prohibits these sales, it effectively incentivizes China to accelerate its own chip production.
American technological expertise and business acumen are unparalleled globally, as evidenced during the internet era. This growth occurred with minimal government subsidies and interference, driven by the worldwide sale of products like Apple iPhones, Google search capabilities, and microchips.
Certainly, there are instances where export controls are justifiable for national security reasons.
However, in this particular case, it appears more likely that we are inadvertently closing off our own markets. Chinese chip giant Huawei is preparing for large-scale shipments of its Ascend AI chips to fill the void we have created. Meanwhile, America’s leading companies are entangled in a web of red tape and shifting definitions of “restricted technology.”
Legislation such as the MATCH Act and the GAIN Act, championed by Representatives Brian Mast and John Moolenaar respectively, are poised to hinder U.S. companies rather than their Chinese competitors. These initiatives fail to acknowledge a fundamental aspect of innovation: research and development demand capital. To recoup the current $700 billion investment flowing into next-generation chips, American firms must have access to the largest possible global markets.
There is a compelling reason why eight of the world’s ten largest and most profitable technology companies are based in the United States. We thrive on market-driven principles. Our primary European and Asian competitors tend to favor central planning models. We possess the most advanced chip technologies globally. These technologies can compete and prevail in the market, a pattern that has held true for the past four decades.
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By transforming our hardware into a tool of geopolitics, we have signaled to the international community that American technology may no longer be a reliable supply chain source. We are effectively encouraging our customers to seek alternatives, and they are likely to do so. Instead, our products should be available for sale worldwide. Export controls, in essence, function as a self-imposed tariff on our own products.
