The Export Control Trap: How the West is Subsidizing China’s Chip Empire

By forcing China to abandon the silicon status quo, Washington is inadvertently funding the next computing paradigm.

Jan 23, 2026

The future of AI microchip manufacturing

When Anthropic’s CEO Dario Amodei sat down at Davos last week, he delivered a warning that reverberated through tech circles. Speaking about the Biden administration's decision to approve exports of Nvidia H200 chips to China, by a move he compared to selling weapons of mass destruction to an adversary.

“It’s a bit like selling nuclear weapons to North Korea and [bragging that] Boeing made the casings.”1

While the hyperbole was striking, it was not nearly as striking as what the statement revealed: a fundamental misunderstanding or perhaps deliberate misrepresentation of how the game on technological competition plays out between nations and not companies.

What Amodei framed as a national security imperative is, in reality, classic rent-seeking protectionism dressed in patriotic clothing. And in pursuing short-term protectionism, he may be actually be hastening the very outcome he claims to fear.

I typically write about cybersecurity and AI, not semiconductor industrial policy. But Amodei’s misrepresentation of the challenges facing the industry today, and what I’m actually seeing happen in China right now, demands a response. My unusual qualifications (!) include tackling strategic issues in the semiconductor industry across Europe, the US, and Asia earlier in my career. That experience makes me confident in saying: Amodei is either fundamentally confused about how this works, or he’s deliberately misrepresenting the landscape to serve his own interests.

The False Premise of Chip Export Controls

Amodei’s argument rests on what appears to be a simple logc: restrict China’s access to advanced chips, slow their AI development, thus maintain American dominance. Unfortunately, the logic is wrong and this kind of linear thinking ignores decades of industrial policy history and understanding of China.

Ask yourself this: “when happens when you deny a motivated adversary access to existing technology”. When that adversary is motivated, extremely well funded, and operates an economy where national strategy takes precedence over short-term corporate profitability, you don’t stop their progress; you force them to innovate around the constraint, and sometimes they leapfrog you entirely.

Consider the evidence already in front of us. China has spent the last 15 years rolling out national strategies – one after the other: Belt & Road Initiative (from 2013), Made In China 2025 (from 2015), Next-Generation AI Development Plan (from 2017). Each of these have surprised the world with its determination and follow-though. A case in point for our AI chip discussion is DeepSeek’s recent emergence which demonstrated that Chinese researchers can achieve competitive AI results with significantly less computational power through algorithmic efficiency.
So, if the bottleneck isn’t really the chips, then what exactly are the US export controls protecting?

The answer becomes clear when you follow the money. Anthropic’s valuation is predicated on a specific economic model: that frontier AI requires exclusive access to massive, cutting-edge compute. This model justifies vast capital expenditure and creates a moat for those who can afford it. Massive data centres built with dependencies on the latest micro chip infrastructure, and continuous chip upgrades needed every 12-18 months creates massive on and off balance sheet investments which in part justifies the astronomical valuations of Anthropic, OpenAI and their US/European competition. I am not alone in questioning the fragility of underlying economic models. So if that assumption collapses because competitors are able to achieve similar results through algorithmic efficiency or alternative architectures, then that multi-billion-dollar moat starts to look like a very expensive ditch. Amodei has a direct financial interest in maintaining the belief that cutting-edge chips are an irreplaceable and scarce commodity.; that is what he wants to protect with the export controls.

China’s Strategic Patience and Forced Innovation

What the USA and Europe consistently underestimate is China’s capacity for strategic patience combined with forced innovation. When denied a technology, China doesn’t retreat; it mobilizes to build the industrial base to replicate and eventually surpass it. The numbers on fabrication plants (‘fabs’) construction tell that story with remarkable clarity. According to a 2021 CSET study, between 1990 and 2020, China built 32 large fabs capable of producing 100,000 or more wafer starts per month. During the same period, the rest of the world, combined, built 24.2

This growth wasn’t random industrial activity. It was deliberate execution of a long-term national strategy. I feel that some context is needed here. A new fab from plan to commencing operations used to take more than 10 years at the beginning of the 2000s and those numbers stuck in analysts minds. Today, depending on location, it takes between 3 to 8 years, where the US is pushing the upper boundary on build time due to very long environmental permits and infrastructure upgrade requirements. You can’t just build a fab anywhere due to the massive energy, water and environmental requirements. China on the other hand, like Singapore and Taiwan, offer “shovel-ready” land for greenfield plants, speeding up the process for companies who want to invest and cut the red tape; taking very different approaches to the US or Europe. For clarity, the comparative fab development timelines (US vs. China) is quite interesting3. While the global average construction time for a fab is approximately 682 days, we need to highlight that this number excludes the critical pre-construction and permitting phase, and the numbers get really interesting when we include those data points. In the United States, the total development for a greenfield fab currently spans 7 to 8 years. This includes an average construction period of 2.5 years (918 days) preceded by an intensive regulatory review phase and infrastructure build-out. The primary bottleneck is the federal National Environmental Policy Act (NEPA) reviews, which averages 4.5 years, alongside sequential efforts to upgrade local utilities to the massive power and water needs that the fab require.4 5

In contrast, China has compressed the total lifecycle to approximately 2.5 to 3 years. This is achieved by a marginally faster construction phase averaging 1 year and 10 months (675 days) but leveraging state-led “shovel-ready” industrial estates. By providing plots with pre-installed utility infrastructure and facilitating expedited, parallel permitting, China’s pre-construction is counted in months and not years. This systemic disparity supports the hypothesis that without significant regulatory reform, US-based projects face a “time-tax” that may challenge the economic viability of all but the most advanced semiconductor nodes.

In May 2024, China launched the third phase of its National Integrated Circuit Industry Investment Fund, commonly known as Big Fund III, with a massive budget allocation that, on paper, looks as impressive as the total U.S. CHIPS Act allocation for the semiconductor industry. But this is where the similarities end. The true scale of China’s commitment becomes evident only when examining its capital deployment mechanism alongside Western counterparts.

While the U.S. CHIPS Act’s headline figure of $52.7 billion and the EU Chips Act’s €43 billion mobilization target appear numerically comparable to China’s $47.5 billion “Big Fund III,” this surface-level comparison obscures a critical divergence in financial potency and speed. China’s fund constitutes a massive, single pool of state capital designed for direct equity investment. This “lead investor” status allows the central government to exert a massive capital multiplier, effectively commanding local governments, state-owned banks, and private entities to match its contribution at a three-to-five-fold ratio. In contrast, the U.S. and EU frameworks rely on subsidies and tax credits to “nudge” the market, leaving the ultimate pace of development to the fluctuating risk appetite of private shareholders and complex state-aid approvals. The West is relying on market signals to invite progress; China is using sovereign capital to command it.

For direct application and speed of allocation which is the key metrics for rapid industrial transformation, the financial architecture of China’s state-led model heavily tips the scales in its favour. It deploys concentrated capital with a strategic urgency that market-oriented governments, with their necessary governance structures, red tape, and oversight, are not designed to match.

The Chinese Big Fund III, therefore, represents far more than an effort to build additional fabs. It is the financial engine for a comprehensive national strategy aimed at controlling every critical link in the semiconductor supply chain: from lithography tools, etching platforms, and inspection systems to the underlying EDA software, photoresists, specialty gases, and wafer materials. This approach is the logical culmination of a hard-learned lesson from previous investment rounds: that technological self-sufficiency cannot be achieved by leading in only one segment. True independence, which also means creating insulation from external sanctions or externally imposed constraints, requires building, owning, or controlling the entire value chain. Big Fund III is the capital committed to that monumental task.

The Architecture Paradigm Shift

This is where the protectionist mindset becomes dangerously myopic. The microchip industry is not static and never was; it is today undergoing a fundamental architectural shift from CPU-centric computing to a new era of parallel and accelerated processing (GPU/TPU/neuromorphic). AI’s defining characteristic – which Anthropic and Amodei understand perfectly well – is its insatiable demand for chips that excel not merely at speed, but at massive-scale parallel computation. This is the very workload that rendered traditional CPUs inadequate and catapulted Nvidia’s GPU architecture to dominance, and which is why we see high-profile investments by OpenAI, Anthropic, etc pouring capital into Nvidia which then fuels the AI companies’ continued growth requirements (at least on paper). Their goal is not merely to secure their own supply, but to stimulate production and R&D into the very architectures Nvidia will then sell back to them.

But we must understand that dominant paradigms are not permanent, ever. The change in paradigms create moments of maximum vulnerability for incumbents and maximum opportunity for challengers. The immense scale of the required investment locks leaders into chosen technology path. A cutting-edge fab represents a multi-billion-dollar gamble on a specific technological roadmap. Its core tooling, like ASML’s Extreme Ultraviolet (EUV) lithography machines (behemoths comprising 100,000 parts, 2 kilometres of hosing, and requiring 40 shipping containers and three cargo planes to transport6) cannot be easily swapped out. This inertia is the incumbent’s ultimate vulnerability.

Nvidia’s current supremacy is tethered to this specific computational paradigm. The risk for the West – primarily the EU and US – is that this advantage is contingent, especially as U.S. export controls temporarily create an artificial technology threshold; it actively compel China to abandon the established path of moderate growth. Denied access to the cutting edge of the chip architecture and tooling, China is not standing still. It is channelling its vast resources, as exemplified by Big Fund III, into funding the next frontier. We are already seeing heavy investment in alternative architectures like the open-source RISC-V instruction set, a direct effort to bypass Western-controlled standards like Arm and x86. China is not just trying to replicate TSMC, they’re attempting to control the frame and define the rules for tomorrow’s race.

History offers us a powerful and sobering reminder. Consider Nokia. In 2007, it commanded nearly half of the global mobile phone market through unmatched hardware scale, supply chain mastery, and lightning-fast response to customer preferences. By 2013, its share was effectively zero. Its downfall was not due to a competitor building better hardware within Nokia’s paradigm. It collapsed because the paradigm itself shifted from hardware to software and ecosystems. Nokia’s immense manufacturing prowess and deep technological lock-in became irrelevant almost overnight. It didn’t gradually lose market share. It just became irrelevant.

The parallel is clear, and the lesson is key. By focusing export controls on preserving a transient hardware advantage in the current architectural paradigm, the U.S. is ignoring Nokia’s fatal mistake. Amodei, in advocating for stricter controls, is actively creating the strategic competitor he claims to fear. In forcing China to innovate elsewhere, the U.S. may be inadvertently funding the very architecture that could render its own trillion-dollar investments obsolete, including the very fabs the CHIPS Act seeks to build on American soil.

The Mature Node Advantage

While Western industrial policy obsesses over cutting-edge 3nm and 5nm processes, China has been systematically dominating production for mature nodes (28nm and above). This is the economically critical – and strategically decisive – battleground that receives less attention but matters profoundly more. The modern world does not run on the latest smartphone chips alone; it is built on mature nodes that power everything from automotive electronics and industrial robotics to IoT devices, medical equipment, and foundational defence systems.

China’s accelerating control over this sector grants it massive, structural leverage. The headline-grabbing advanced chips enable peak performance, but mature nodes represent the bedrock of global manufacturing – where volume, reliability, and strategic dependency are cemented. Mastery here provides more than just economic clout; it creates a stable platform for vertical integration and iterative innovation. By perfecting production on mature technologies, China builds the expertise, supply chains, and capital reserves necessary to fund the risky climb to the next frontier.

This strategy of mastering the foundational to enable the advanced is already visible. In 2025, the Chinese firm SiCarrier – founded only three years prior – publicly advertised pathways to produce advanced-node chips using multi-patterning techniques that bypass the need for ASML’s EUV lithography.7 Critics rightly point out that making 3nm chips without EUV is exponentially more expensive and suffers from dismal yields. And in a Western market, these would be disqualifying commercial failures. However, China views these “good enough” pathways as essential bridges to keep process knowledge alive. Even the corruption and “ghost fabs” revealed in earlier iterations of the Big Fund initiatives, while scandalous, functioned as a brutal form of “learning tax.” Beijing is willing to pay the price of trial, error, and even graft to build the institutional “scar tissue” required for eventual sovereignty.

The ultimate insight for the West is not that China will eventually build better versions of our current chips; it is that they are being forced to make our current chips irrelevant. By perfecting photonic computing or neuromorphic architectures, which do not rely on the same lithographic bottlenecks, China isn’t just trying to catch up in the current race. They are trying to move the finish line.

Essentially, by securing the industrial base everyone else takes for granted, China isn’t just playing catch-up in a race defined by others. It is building the resilient, integrated, and experientially rich ecosystem from which the next leap forward is most likely to emerge.

The Self-Fulfilling Prophecy

The CHIPS Act and US export restrictions have acted as a catalyst, removing any internal Chinese debate about the necessity of total self-reliance. What was once one policy option amidst many is now a civilizational imperative. This is how protectionism backfires.

When survival is at stake, the calculus changes entirely. Cost overruns become acceptable. “Good enough” solutions become viable stepping stones. The full force of state capital, talent mobilization, and industrial policy gets brought to bear with 15-year time horizons that make quarterly earnings look absurd. This is not hyperbole; it is the cold logic of realpolitik.

China has demonstrated this playbook before: high-speed rail, telecommunications infrastructure, electric vehicles. In each case, initial Western dismissiveness (”they’re just copying”) gave way to concern about quality (”it’s cheap but inferior”), then sudden realization that China wasn’t just competing but leading. The semiconductor challenge is orders of magnitude harder, but so is the level of resource commitment being applied.

The central strategic miscalculation of Western policy is viewing China’s semiconductor ambition through a commercial lens rather than understanding it as an existential state project. The CHIPS Act aimed at protecting a lead; China sees it as technological containment that validates their need for a completely autonomous stack. America is optimizing for commercial viability and return on investment. China is optimizing for strategic autonomy, accepting that some facilities might never make commercial sense in a pure market framework.

Where Amodei’s logic fails

Returning to Amodei’s nuclear weapons analogy: it reveals a fundamental category error. A nuclear weapon is a static, finished product – the threat is the object itself. Microchips, however, are dynamic tools of enablement. If Anthropic’s true competitive advantage lay in superior algorithms, safety protocols, and architectural brilliance, then a competitor’s access to H200s would be a hurdle, not an existential threat.

The vehemence of his opposition suggests a “Wizard of Oz” problem: he is shouting to protect the curtain because the magic behind it is less durable than the $40 billion valuation suggests. DeepSeek’s efficiency breakthrough was a “Sputnik moment” for the scaling-law true believers; it proved that the multi-billion-dollar compute moat is not a permanent fortress, but a temporary advantage. To be clear, while DeepSeek is a brilliant proof of algorithmic efficiency, it was still trained on thousands of Nvidia’s H800 chips, so while there may still be a need for companies like DeepSeek to use current high-end chip architecture, the deeper learning is that the quantity of chips required for a frontier model is much lower than American CEOs want investors to believe.

When the ‘compute moat’ can be bypassed with clever math, the trillion-dollar hardware advantage starts to look like a stranded asset. But that’s a narrative that exposes Amodei’s hidden agenda.

By lobbying for export restrictions, Amodei is performing textbook rent-seeking: asking the state to handicap more efficient competitors under the guise of national security. This is the ultimate irony: the “safety” he advocates for is not for the public, but for a fragile business model that requires chips to remain scarce and expensive to justify its own astronomical costs.

The Long Game

The decoupling of the world’s two largest economies is not just a trade war; it is the birth of two parallel, competing innovation systems.

For decades, China followed the tao guang yang hui (韬光养晦) strategy which means “hide your strength, bide your time”, DeepSeek was the signal that the “biding” period is over. While Western analysts were busy dismissing Chinese capabilities, a new ecosystem was materializing in the “left field” of algorithmic efficiency and mature-node mastery.

The West continues to underestimate the “singular determination” of the Chinese model. When forced to choose between quarterly market gains and 15-year strategic positioning, Beijing chooses the latter every time. The West is optimizing for the next earnings call; China is optimizing for the next epoch.

The real question isn’t whether export controls will delay a Chinese LLM by six months. It’s whether American executives, by begging for government protection, are trading temporary relief for permanent displacement. In clinging to the current hardware paradigm, they are ensuring their irrelevance in the next one.

The semiconductor race is no longer about who makes the fastest chips today. It’s about who builds the independent, resilient ecosystem that defines “fast” tomorrow. By attempting to contain China, the U.S. has inadvertently provided the ultimate stimulus package for Chinese innovation—ensuring they are no longer constrained by foreign technology, or foreign goodwill.

Amodei stood on that Davos stage thinking he was defending the American technology lead in AI. In reality, he was advocating for the very conditions that will ensure American obsolescence.

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