The great American wit H.L. Mencken once observed: “There is always a well-known solution to every human problem—neat, plausible, and wrong.”
Today, a great problem facing U.S. policymakers is how to maintain America’s technological edge against a rising China. Given China’s goal of supplanting the United States as the world’s leading power, America is right to take this challenge seriously, which today involves semiconductors and AI. The “well-known solution” posited by many in Washington is to lock down advanced chips, such as those made by Nvidia and Advanced Micro Devices (AMD), and keep them only in this country. If China cannot access them, America will maintain its AI lead, right?
Not necessarily.
Interconnected technologies tend to generate what are called “network effects.” This refers to a dynamic in which the greater the number of buyers, sellers, or users of a product, service, or platform, the greater the value it creates. Economies of scale.
When foreign countries build their information networks on widely used American technologies, benefits accrue to the United States. This happens in at least three ways, with the first being economic: Sales of technologies abroad generate money for its creators and home jurisdiction. Second, network effects grow as more people use the technology or platform. In a country like China, the upsurge in users is enormous. Third, companies that build and operate the technologies at the heart of the network have a significant ability to shape how it evolves and is used. One can envision many benefits to the U.S. on this front.
Until 2022, Nvidia had a successful business and enjoyed network effects in China. Prominent Chinese companies used their chips as the foundation of their AI-tech stacks, and Nvidia and the United States benefited.
Nevertheless, in October of that year, the Biden Administration introduced the first in a series of bans on the exports of advanced processing chips to China, including those made by Nvidia, to train and use AI models.
Evidently, Team Biden thought that America held all the cards—impose export bans and China’s AI capabilities would be crippled. Commerce Secretary Gina Raimondo later explained her objectives: keep these chips “out of the hands of our foreign adversaries but also (enable) the broad diffusion and sharing . . . with partner countries.”
In response, China, Inc. decided on a more direct approach—they would make their own advanced chips. Famously, when China seeks to master a technology, the scale of its investment is enormous; while its best chips have yet to surpass the top American chips, the race is not over.
China dreams of its chips becoming the global gold standard—broadly deployed and delivering network effects for China. It previously achieved this in many countries with Huawei in the telecom space, despite massive U.S. pressure.
Yes, there remains demand for U.S. chips in China, but China is several years into its own advanced chip program, and the Chinese government has prevented Chinese companies from buying American chips under the new deal. That’s despite the fact that In 2025, the Trump Administration finally lifted the Biden-era export controls. China has it pegged: keep the U.S. out and keep its market share.
The matter of U.S. chip sales to China was raised during President Trump’s recent visit to Beijing, and even with the Department of Commerce clearing the export of Nvidia’s H200 chip to China, there was no apparent progress. China is now well down the path of building its own advanced AI chips, and thanks to Biden’s export controls, the U.S. is losing a key opportunity to shape the global tech stack with our hardware. As officials shape the agenda for President Xi’s Washington visit in September 2026, market reopening for U.S. chips should be a key priority to reclaim that leverage from Beijing.
Zooming out, the matter of chip sales to China offers a cautionary tale. Before banning advanced exports, it is critical to understand the advantages of the status quo, how technology is disseminated, and the likely counter-response. What the Biden ban ultimately created was formidable Chinese rivals to Nvidia and its U.S. peers.
To get back into the Chinese market, America will now have to “pay” for the right to sell a world-class product that their counterparty would have acquired by the truckload just a short time ago. Once done, let’s not do that again.