Demystifying America’s Chips War With China

The fight over semiconductor export controls is really about leadership in artificial intelligence, not trade technicalities.

The Trump administration’s decision to restrict Chinese companies operating outside mainland China from accessing advanced U.S. semiconductors has been described as a narrow export-control issue. It is better understood as recognition of a larger reality: competition between the United States and China is defined by artificial intelligence.

At the heart of the issue is a simple question. Should a Chinese company be able to obtain advanced American chips through an overseas subsidiary while still subject to Chinese law?

That concern is not hypothetical. China’s 2017 National Intelligence Law states that organizations and citizens shall support, assist and cooperate with national intelligence work in accordance with law.

As Chairman John Moolenaar of the House Select Committee on the Chinese Communist Party has argued, a company’s mailing address does not determine whether it remains subject to Chinese legal obligations. The relevant question is whether the parent company ultimately remains accountable to authorities in Beijing.

Framed narrowly, this looks like a dispute over chips. It is not.

Advanced chips sit at the center of modern AI systems. They enable model training, large-scale data processing, simulation, intelligence analysis, cyber operations and scientific research. Access to cutting-edge computing is now a key determinant of technological leadership.

China has spent years trying to reduce its dependence on foreign semiconductor supply chains. One example is the National Integrated Circuit Industry Investment Fund, commonly known as the Big Fund, which has directed tens of billions of dollars toward domestic chip development. In 2024, China launched a new phase of the program worth roughly $47.5 billion.

At the same time, U.S. authorities have documented repeated efforts to evade export controls. The Justice Department has brought cases involving the illegal transfer of semiconductor technology to China. In January 2026, federal authorities shut down a smuggling network that had obtained Nvidia GPUs through straw purchasers, stripped the labels and rebranded the chips under a fictional company called “SANDKYAN” before routing them toward China. Two months later, DOJ charged three additional defendants accused of ordering roughly 750 servers containing nearly $170 million in restricted chips, routing the shipment through Thailand to obscure the final destination.

These cases matter less as isolated incidents than as evidence of a persistent incentive structure. When technologies remain commercially valuable and strategically important, actors will continue to look for ways around restrictions.

Export controls alone are unlikely to be sufficient. AI capability depends on more than chips. It depends on access to cloud infrastructure, data, software ecosystems, engineering talent and increasingly sophisticated algorithms. Tightening one layer of the stack while leaving others exposed risks shifting, not solving, the underlying problem.

Chairman Moolenaar’s SCALE Act attempts to address part of this challenge by creating a more durable framework that sets clearer standards for when and how semiconductor restrictions should apply. Whether one agrees with every element of the proposal, the underlying concern is widely shared.

Export controls are only as effective as the gaps they leave open. When policymakers identify weaknesses that undermine their intent, closing them becomes a matter of enforcement and of credibility.

The United States still retains significant advantages. Its universities, research institutions, capital markets and technology companies remain among the strongest in the world. But those advantages do not maintain themselves. They depend on policies that support innovation while protecting technologies with clear national security implications.

The race for AI leadership is unfolding in research labs, cloud computing centers, universities, startups and government agencies around the world. The chips moving through those networks today will help determine who holds the technological advantage a decade from now.

Getting the export controls right isn’t a trade issue. Rather, it’s all about protecting the lead while you still have one.

James Carter is a Principal with Navigators Global and a Policy Advisor with America’s Economy First. Previously, he served as a Deputy Assistant Secretary of the Treasury (2002-2006). Timothy Maney is a board member of Zenith Intelligence Group. He previously directed and managed the Federal Budget and Appropriations portfolios for the U.S. Chamber from 2000-2024. Previously, he served as the Chief Investigator for the Census Subcommittee (1998-2000).

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