President Donald Trump emerged from his recent meeting with Xi Jinping in Busan, South Korea, saying that, on a scale of 1 to 10, “I would say the meeting was a 12.” But behind the hyperbole, the meeting revealed a stark reality: America is negotiating from a position of eroding strength in the technologies that will define 21st century power. Indeed, buried in the president’s comments was a troubling signal: semiconductor policy is now on the negotiating table, with Trump suggesting the American chipmaker Nvidia will talk directly to Chinese officials while Washington plays “referee.” That has now apparently resulted in White House endorsement of a “compromise” that will allow Nvidia’s advanced H200 chip to be exported to China.
To succeed in geo-economic competition with China, U.S. policy should seek to preserve asymmetric advantages by maintaining China’s reliance on U.S. products and technologies, while controlling access to the essential capabilities that secure America’s national security and economic edge. The challenge currently is that China isn’t playing Trump’s transactional game. While the Trump administration celebrates short-term deals, Beijing is executing a multi-decade strategy to dominate the semiconductor supply chain from raw materials to finished chips. Tufts University Professor Chris Miller has estimated that China has invested the equivalent of the entire U.S. CHIPS Act virtually every year since Xi made domestic semiconductor manufacturing a priority in 2014. The CHIPS Act allocated some $52.7 billion ($39 billion for manufacturing grants) for domestic semiconductor manufacturing. It was signed into law by President Joe Biden in 2022 but has been abandoned by the current administration.
When Trump decided to continue the Biden administration’s export controls on advanced chips earlier this year, Xi didn’t blink. Instead, he doubled down on the indigenous innovation programs that have allowed China to achieve breakthroughs that many in the United States thought were only possible in some distant future, such as 7-nanometer chips, considered the “entry point” for competitive AI, and carbon nanotube processors that could leapfrog silicon entirely, outperforming in scale, speed and efficiency.
Worse yet, this strategic drift is coming precisely when the U.S. semiconductor advantage faces threats from multiple directions: China’s accelerating innovation, allies’ frustration with inconsistent U.S. policies, and self-inflicted wounds from using the CHIPS Act as leverage for the government to muscle-in and take a position in private corporations.
The Worst of Both Worlds
The current U.S. government approach to semiconductor export controls embodies the worst of both worlds: undermining American companies’ competitiveness while failing to meaningfully slow China’s progress. Nvidia and AMD face billions in losses from restricted China sales, revenue that funds the research and development needed to keep the United States ahead. Meanwhile, Chinese firms smuggle restricted chips through shell companies, rent computing power from cloud providers, and innovate to get around U.S. restrictions with impressive speed. DeepSeek, a Chinese AI startup, in January 2025 released R1, an open-source research model roughly matching the capabilities of advanced models from OpenAI, Google, Meta, and Anthropic. The breakthrough demonstrated that Chinese companies can achieve efficient AI models, trained on fewer chips than American labs typically use, and demonstrated that hardware constraints can drive software innovation in ways U.S. tech companies have yet to match.
Meanwhile, U.S. policy has devolved into threats to withhold already-promised CHIPS Act grants to American companies, efforts to change deal terms after capital and investments were already committed, and suggestions that the government take an equity stake in companies or convert grants into government ownership. The wildly oscillating approach to export controls creates uncertainty not just for U.S. adversaries, but for American companies, which require predictability to plan and implement multi-billion-dollar, multi-year investments.
The solution requires a more sophisticated approach, exercising the tools the government has at its disposal to both work with and leverage the private sector to assure that the United States will maintain its technological lead for generations yet to come. Trump’s instinct to use semiconductor access as leverage isn’t wrong; it’s that the execution and approach thus far undermine the desired goal. Treating advanced chips as tradeable commodities that the United States can turn on and off based on soybean purchases or other short-term transactions fundamentally misunderstands what’s at stake. These are the chips that power artificial intelligence, quantum computing, and autonomous weapons systems, and it’s not an overstatement that the country that leads the world in AI will also have significant economic, military, and strategic advantages for generations to come.
A More Effective Strategy
A pragmatic, realistic approach would include:
First, control the tools, not just the products. As one analysis put it, “It’s much easier to control the fishing rod than the fish.” Semiconductor manufacturing equipment – the massive chip-making machines from companies like Netherlands-based ASML – represent the real chokepoint. These tools are produced by a handful of firms in countries that are U.S allies; unlike the chips themselves, they are impossible to smuggle; and they’re what China desperately needs to achieve true independence. By contrast, controlling finished chips forces constant policy updates as companies design around each new restriction.
Moreover, constantly shifting rules breed regulatory uncertainty that pushes customers toward Chinese alternatives. Nvidia’s H20 chip was designed specifically to comply with export restrictions, only to then be banned in April 2025, then unbanned months later with a 15 percent revenue-sharing requirement – only to then have the administration just last week lift restrictions on the even more advanced H200. Customers that rely on a predictable supply of chips and are watching this whiplash, many in China, now have every incentive to develop relationships with domestic Chinese suppliers like Huawei, whose supply won’t disappear based on Washington’s latest dealmaking.
The U.S. government needs to focus restrictions on where enforcement works and where partnership is deepest with other nations that share concerns about the malign effect of tech competition with China. Yes, some advanced chips should remain restricted for military applications, but the current approach of banning compliance-engineered chips goes beyond what is needed for security and may be actively counterproductive if the result is to drive Chinese innovation and independent manufacturing capability. U.S. policy should be torqued to restrict where it must but also to let American companies sell more chips where they don’t compromise fundamental advantages.
Second, make export controls a force multiplier, not a substitute, for American competitiveness. The CHIPS Act has spurred investments of tens of billions of dollars in domestic semiconductor capacity — investments that the “adjustments” introduced by the Trump administration threatens to undo. While there are certainly adjustments that can provide additional leverage, Congress and the administration need to refocus on accelerating and expanding investments. U.S. semiconductor companies also need to be able to generate revenues to fund next-generation research and development. That means expanding their access to markets in Japan, South Korea, Taiwan, and Europe to offset losses in China. U.S. companies need economies of scale to compete. While exports to certain markets and countries certainly require additional scrutiny, especially those with deep or longstanding economic ties with China, cutting them off from the world’s largest chip market without providing alternatives is strategic suicide.
Third, recognize that success requires leveraging U.S. alliances fully. The U.S. semiconductor advantage depends entirely on continuing cooperation with technologically advanced and like-minded countries that help support America’s competitive advantage in chips: Dutch lithography (to print the circuit patterns on the silicon at micro/nano scale), Japanese materials, South Korean memory, Taiwanese manufacturing. But the Trump administration’s single-minded pursuit of unilateral control, viewing partnerships as dependency and weakness when in fact they are a strategic asset, has both frustrated allies and left enforcement gaps that China can exploit. The United States benefits from multilateral arrangements with partners to share in the economic pain and required commitment to enforcement as well as to jointly reap the benefits of the strategic upside. The answer isn’t “join us or else.” U.S. economic statecraft and commercial diplomacy should be leveraged to streamline allied export controls, expand their CHIPS Act research access, and jointly develop next-generation technologies, including treaty-level commitments, not just ad hoc coordination shifting with each presidential tweet.
Fourth, accept that some technologies are too foundational for national security to treat them as just another trade variable. The most dangerous signal from the Trump-Xi meeting in Busan was the implication that advanced semiconductor access is negotiable based on agricultural purchases or fentanyl or other matters. While Xi surely suspected it before, he left Busan knowing that security-driven export controls and America’s technological edge are up for negotiation, if the price is right.
Finally, recognize that America’s technological leadership requires protecting the entire innovation ecosystem, not just products. Indeed, America’s advantage has long been in the complete innovation system — universities, capital markets, design tools, equipment expertise, and global talent. Government actions that hollow out or wreck this ecosystem, in whole or in part, create the risk of technological collapse. For the private sector, lost revenues mean cuts in R&D budgets, laying off engineers, and ceding market share to foreign competitors that face fewer restrictions. Export controls should protect core capabilities while enabling companies to maintain the scale and revenues that, in turn, fund continued innovation.
Not Too Late
The Busan meeting bought some temporary calm on rare earths and tariffs. But Xi achieved his objectives: he got semiconductor restrictions on the negotiating table, maintained his option to reimpose rare earth controls in a year, and watched the Trump administration signal that advanced chip access is negotiable rather than strategic — a bet that appears to have now paid off with the H200 decision. Thus far, Xi is thinking in five-year plans while Trump is thinking in tweets.
But it’s not too late. For all its other failings — and they are many — the Trump administration’s new 2025 National Security Strategy is right in maintaining that American leadership in advanced technology lies at the very heart of national security for the 21st century. And nearly at this Trump administration’s one-year mark, it’s likewise clear that if its ambitions for maintaining economic, commercial, and technological advantages are to be fulfilled, it needs to get much smarter about how it seeks to pursue its strategy. That means predictable investments in American research and manufacturing; targeting controls on manufacturing equipment where enforcement works and leverage with allies and partners is greatest; supporting semiconductor ecosystems in friendly nations rather than alienating them through policy chaos; and recognizing that foundational technologies should not be traded away for a hill of soybeans or self-interested revenue-sharing deals.
American technological leadership in the century ahead requires a strategy that is ruthlessly focused, multilaterally coordinated, and strategically disciplined. We know the answer. The question is whether this administration can summon the discipline to execute it.
