One of the goals of President s trip to China is to help ensure continued American tech dominance. One worry is that China steals our technology.
But sometimes we foolishly handicap our tech companies with bad policies here at home.
An example is export controls, which are a threat to U.S. dominance and limit markets for American-made tech products. The politicians and bureaucrats have decided that they, and not the free market, are best equipped to manage the global semiconductor trade. It’s not going well.
Were still winning the chip war against China, but not by much.
Even after years of stringent export controls that have crushed NVIDIA and AMD’s sales into China, recent tracking shows that the U.S. lead over China in AI has almost completely evaporated. Instead of slowing Beijing down, we have effectively subsidized the development of their domestic chip manufacturing by blocking and/or taxing their American competitors. As a result, the Chinese government has poured $47.5 billion into a state-backed semiconductor fund.
We know from global experience that government is a terrible investor, so a lot of Chinas industrial policy money will be misdirected.
The question is, as a matter of , how do we maintain our tech lead?
By cutting off our most successful chipmakers from a huge foreign market, Washington is imposing what I call the “Doomer Tax.” American chipmakers lose $50 billion in annual sales, which, at their healthy 70% margins, equates to $35 billion in lost profits. That means about a $7.5 billion loss of revenue to the U.S. Treasury every year. It also means that these AI companies have less to invest in the next generation of chips.Â
A simple metaphor illustrates the absurdity of the current strategy. Imagine an American airline the federal government to ban Boeing from selling aircraft to a foreign carrier, simply because they didn’t want the competition. I hope we would laugh them out of the room.
Yet, that is exactly what is happening in AI. A handful of AI software players, led by Anthropic, which , lobby Washington to block those companies from getting American chips. But if Anthropic wants to block the sales of its own chips, theyre welcome to do that â particularly if they are, with some merit, worried about intellectual property theft.
But when our government prohibits these sales, in practice, this incentivizes China to accelerate the production of its own chips.
American tech know-how and business acumen are unrivaled in the world â as we learned in the Internet age. That happened with very limited government subsidy and interference. And it happened by selling iPhones and Google search capabilities and microchips across the globe.Â
Yes, there are times, as a matter of national security, that export controls make sense.
But in this case, its more likely that we are closing off markets. Chinese chip giant Huawei is preparing mass shipments of their Ascend AI chips to fill the vacuum we created, while America’s best companies are buried in a mountain of red tape and shifting definitions of what constitutes “restricted technology.”
Thats why legislation like the MATCH Act and the GAIN Act, pushed by Florida Republican Rep. Brian Mast and Michigan Republican Rep. John Moolenaar, respectively, are likely to hamstring U.S. companies, not our Chinese competitors. They ignore the basic reality of : R&D requires capital. To recoup the now $700 billion of investment flowing into the next-generation chips, American firms must have access to the largest possible global markets.
Theres a good reason that eight of the 10 largest and most profitable tech companies in the world are located in the USA. We use markets. Our key European and Asian competitors rely more on central planning models. We have the most superior chip in the world. They can compete and win in the market â just as they have for the past four decade
