US AI export controls face limits as China adapts and allies waver
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US export controls on advanced chips are slowing but not stopping China's AI development, as Beijing invests in domestic alternatives and seeks loopholes. Washington's Pax Silica initiative has drawn 23 states and the EU, but allied cooperation is strained by commercial costs. The outcome of the AI cold war hinges on whether US allies sustain restrictions or pursue alternative supply chains.
Key Facts
- The US launched the Pax Silica initiative last year to secure AI supply chains excluding Beijing, with 23 states and the European Union joining.
- In June, the US government curbed Chinese companies' ability to buy advanced US chips via overseas subsidiaries, closing one loophole.
- ASML CEO Christophe Fouquet questioned whether restricting sales of the most advanced chipmaking equipment to China would work or only push it to develop its own.
- China is investing in domestic chip alternatives while improving AI model architecture and optimizing training and inference efficiency.
Limits of Export Controls
US and allied export controls currently hold the upper hand in key AI development areas, as China's frontier models remain heavily dependent on imported chips, chip-designing software, and chipmaking equipment. These controls hinder China's ability to keep pace with the latest AI technologies, driving up costs and undermining investor confidence. However, AI development is not a single contest over chips; human capital, financial capital, market size, regulatory agility, and industry adoption matter just as much. China is responding by investing in domestic alternatives, improving AI model architecture, optimizing training and inference efficiency, and squeezing more out of existing chips.
Allied Cooperation Strain
Advanced chip supply chains span multiple political entities, combining US design, Dutch and Japanese equipment, and Taiwanese manufacturing. US export controls, if pushed too far, revised too often, or kept in place for too long, could backfire as allies develop policy fatigue. Allies unhappy with Washington offloading steep commercial costs may begin actively investing in alternative supply chains to bypass US technology and regulations. ASML CEO Christophe Fouquet questioned whether restricting sales of the most advanced chipmaking equipment to China would work or only push it to redouble its own development efforts.
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