Looking ahead, the semiconductor export controls could have significant unintended consequences for both the United States and China. First, US chip companies face substantial financial risks due to the loss of the Chinese market. The US Chamber of Commerce in China projects that this could result in an annual loss of $83 billion in sales and 124,000 jobs. US semiconductor equipment firms are particularly vulnerable, given their reliance on Chinese sales, with an estimated 30–40 percent of sales going to China. This shift is evident in companies such as SMIC, a major Chinese chipmaker, which has transitioned from 60 percent foreign customer production five years ago to 80 percent domestic production currently. The potential revenue loss could initiate a detrimental cycle where reduced research and development budgets compromise US firms’ global competitiveness.

Paradoxically, these export controls may also catalyze China’s efforts to establish an independent semiconductor supply chain. By removing access to cheaper foreign chips, US policies have inadvertently achieved what years of Chinese government initiatives could not: compelling Chinese companies to develop domestic alternatives. Evidence of this trend is already emerging. In 2023, Huawei released the Mate Pro 60, featuring a 7nm chip produced by SMIC, a feat previously thought impossible without restricted extreme ultraviolet technology machines. While full replacement of US suppliers will take time, the incentives for this transition are now firmly in place.

Another factor to consider is the nonlinear nature of technological innovation. Traditionally, advances have been driven by Moore’s Law—the observation that the number of transistors on a chip doubles about every two years, leading to exponential increases in computing power. This principle has guided the industry’s focus on lithographic scaling, with lithographic machines like those produced by ASML becoming critical technological chokepoints that China cannot replicate. However, the semiconductor industry is increasingly moving away from pure lithographic scaling. As transistors approach atomic scale and fabrication costs skyrocket, industry experts anticipate that computing power gains from Moore’s Law will plateau by 2025, pushing the sector to explore alternative avenues for improving chip performance.

This shift gives China a chance to focus on areas such as memory-centric computing and system-level optimizations, which may help them catch up to the United States technologically, even without advanced lithography machines. By investing in these technologies, China could create high-performance chips that sidestep US restrictions and weaken the effectiveness of US sanctions. This broader separation could isolate the United States from the global economy—a situation some have compared to “the technology equivalent of de-dollarization.”

US export controls have disrupted China’s high-end chip production in the short term, but long-term success depends on adapting to rapid tech changes. Policymakers must monitor and adjust regulations to maintain a competitive edge, focusing on closing loopholes, tracking China’s chip capacity, and developing alternative rare earth supply chains. Balancing aggressive controls with global influence is crucial, as effectiveness hinges on responding to emerging industry challenges.