Trump is (slowly) fixing Biden’s mistakes on chips

By James Erwin

The White House released its much-anticipated AI Action Plan on Wednesday, setting ambitious goals for American tech leadership. But unless the administration accelerates its efforts to reverse former President Biden’s semiconductor policy, it could all be for nought.

The plan, made official by the President’s signature on a series of executive orders, is a good one. Prioritizing deregulation and energy infrastructure will help accelerate American innovation, and the plan even endorsed withholding funding to states that overregulate AI, which was a proposal that fell out of the Big, Beautiful Bill during the Senate vote-a-rama.  

Energy infrastructure, capital investment, and ease of doing business are all essential to winning the AI race, but AI also requires hardware to actually function. Specifically, advanced microchips and GPUs. The Trump administration has made progress from Biden’s heavy-handed approach to chips policy, but they need to move faster to win the future.

It is now agreed as consensus that advanced chips are key to innovation, yet the Biden administration saddled chip makers with export controls. Staunch New Dealer that he was, Biden heeded the advice of central planners who thought the U.S. Government could somehow micromanage the global supply and distribution of advanced microchips. American chip producers, those building the critical infrastructure of the future, were restricted from selling their wares to all but seven close allies. If you wanted to sell anywhere else, you needed permission from the Executive Branch on the theory that it would be too easy for the Chinese Communist Party to get their hands on American chips from the secondary market.

As the recent Deep Seek demonstration has shown, the export controls did not work. The CCP was able to brute force its way to advanced computing nearly as good as that available in the U.S. through the sheer scale of the hardware employed and the energy used. They have no compunctions about burning coal and capital to catch up.

At this point, all export controls are doing is preventing American companies from accessing and dominating the global market outside of our closest friends. Every country wants to get in on the AI game. They will either buy our GPUs or China’s. China will build its own, meaning there is no real national security risk in selling globally. It is best to get the world on the American standard, and to emulate our open markets and competition. Restricting global access to our products is the wrong policy to continue at this time.

Part of the theory behind export controls (beyond the typical arrogance of bureaucrats thinking they know what’s best for a global market) was the smuggling concern. GPUs built in one country could be spirited away in the night to China to be surreptitiously installed into supercomputers by sinister spies.

But smuggling is an overstated problem. When one considers the physical scale of cutting-edge AI systems, the proven ability of Chinese firms to innovate with older hardware, and the rapid progress of Huawei’s indigenous Ascend chips, the fixation on alleged GPU smuggling misunderstands the nature of the race. Gone are the Cold War days when Soviet intelligence made up for their lack of scientific innovation – China is able to problem-solve all on its own. All we can do is stay ahead with better innovation.

Furthermore, the economics of smuggling do not corroborate this theory. Risk premiums can drive prices up by 200–300% over legal market rates. Nvidia H100 chips reportedly fetch up to $40,000 each in China, compared to $10,000–$15,000 in the US. Few have the start-up capital to even attempt such operations, and the resulting systems are often quickly outpaced by newer technology available to Western companies. Meanwhile, the scale of smuggling is dwarfed by the billions China is investing in its domestic chip industry, and by the legal supply of Huawei’s Ascend chips, which are now powering world-class AI models.

Either way, importing or stealing American hardware does not mean one can build a frontier AI system. Frontier systems require staggering quantities of GPUs – between 100 and 400 thousand. Without legions of trained engineers who have experience networking and troubleshooting the systems, as well as sophisticated energy infrastructure and advanced cooling systems, GPUs fail. They require constant monitoring, maintenance, and support to work. These are systems the CCP has at its disposal irrespective of Washington’s preferences. Combined with Beijing’s ability to manufacture older hardware at scale to compensate for its lack of the most advanced chips, this sophisticated computing infrastructure is already bidding for global adoption.

Our only course now is to provide a better product to out-bid them. We do this by leveraging the systems we have that work better than China’s equivalents: cheaper energy, the best minds from around the world, strong capital markets, the rule of law, and an open market.

The Trump administration is gradually discarding elements of Biden’s failed command-and-control approach that only held American companies back and invited China to dominate global compute. The Department of Commerce’s decision end of the blanket diffusion rule restricting exports in May was a welcome development.

They took a further step in the right direction by approving sales of NVIDIA’s H20 chips, which were specifically designed to comply with these controls, to China. This has drawn rebuke from the House Select Committee on the Chinese Communist Party, which believes that China cannot produce a product of equivalent quality.

The Committee misunderstands the battle: it is no longer to keep China from building GPUs to make sure the ones they build depend on American imports. Huawei has amassed a stockpile of nearly 3 million Ascend chips from Taiwan’s world-class TSMC fab. They are producing their own AI chips at record levels. The CCP is fully capable of building AI for the world. Preventing H20 sales to China will not prevent them from building frontier systems – it will only reduce competition with Huawei’s slightly inferior product and pave the way for a totally Chinese AI stack optimized to Huawei’s standards. The Trump administration is right to keep American firms competitive with China, ensuring their systems rely on our hardware and that our chips remain essential and unchallenged in the global market.

Sadly, even as the Trump administration relaxes export controls to China, it simultaneously (and incoherently) tightens them against other countries. At the beginning of the month, the Commerce department added Thailand and Malaysia to the restricted list. To truly win the future, the Trump administration needs to go all-in on open markets and end this unwieldy licensure regime.

Slowly, incrementally, almost imperceptibly, the Trump administration is correcting Biden’s central planning on semiconductors. Recognizing that we will not beat China by being China, they have allowed American hardware to flow more freely around the world. To win the future as the president has ambitiously outlined, however, he needs to stamp out the last vestiges of Biden’s old-fashioned ideas and embrace an open markets approach to technology. Only then can American companies dominate global industries.