National Interest

by Robert C. O’Brien

    China’s progress in artificial intelligence is not slowing down. America can only win by doing what it does best: innovating.

    Washington has been carefully crafting export controls to stop the flow of advanced semiconductors to China, assessing that America’s technological edge can be secured simply by cutting off tech transfers. But unfortunately, the threat of large-scale chip smuggling is not the primary threat to US tech leadership and absent other policy tools, it risks distracting us from the larger arena of competition: innovation, scale and open market leadership.

    The technology competition between the United States and China will determine who will lead the world militarily and economically for decades to come. For the first time in many years, the United States is competing against a peer adversary for global influence and economic survival. Washington is rightly committed to maintaining American tech leadership by focusing on AI development as the core domain in this rivalry.

    Unlike the last time the United States faced off against a peer adversary, this competition is taking place in the digital age. It requires policy solutions that reflect the modern technological landscape. Export controls, intended to prevent the transfer of American technology, are an important part of the strategy. However, protecting American technology from theft matters just as much in cyberspace as it does in physical space.

    When we look closely at 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, our priority should be to empower American companies, not to constrain them. Our policy focus should be on where the primary domain of competition matters most.

    Smuggling American tech into China is becoming increasingly arduous and expensive. A modern AI training cluster can combine nearly a hundred GPUs, each packed with billions of transistors, into a single liquid-cooled server rack weighing over 1.3 metric tons. Transporting and operating such a system requires forklifts, specialized cooling infrastructure and high-voltage power—logistics that are impossible to hide.

    Even if these racks are disassembled, each circuit board is serialized and tracked and assembly requires advanced manufacturing and careful handling. The interconnected nature of these GPUs means that only complete, well-integrated systems can deliver the performance needed for cutting-edge AI workloads.

    Similarly, smuggling advanced AI chips into China involves a labyrinth of shell companies, transshipment points and elaborate disguises, all of which add enormous risk and cost. Risk premiums can drive prices up by 200–300 percent over legal market rates, with Nvidia H100 chips reportedly fetching up to $40,000 each in China, compared to $10,000–$15,000 in the US. Only the wealthiest and most sophisticated actors can even attempt such operations and the resulting systems are often quickly outpaced by newer technology available to Western firms.

    Meanwhile, the scale of smuggling is dwarfed by the billions China is investing in its domestic chip industry, as well as the legal supply of Huawei’s Ascend chips, which are now powering world-class AI models. In short, smuggling is a high-risk, high-cost and ultimately unsustainable workaround that cannot compete with the efficiency, scale, or innovation of open, legal competition. The United States cannot expect export controls alone to give American AI the edge it needs. Our firms need to be prepared to confront Chinese AI development in the open market.

    Attempting to regulate America’s path to AI supremacy is a distraction that risks ceding leadership to China. Export controls alone have not stopped Chinese progress; instead, they have forced Chinese companies to innovate with older hardware and develop new technical solutions, as seen with models like DeepSeek-R1 and Huawei’s Pangu Ultra.

    DeepSeek-R1, for example, achieved world-class performance using thousands of bandwidth-capped H800 GPUs and older A100s—hardware that is two generations behind the latest US technology. These policies, intended to lock in American dominance, have instead spurred Chinese firms to greater heights, threatening America’s technological advantage.

    Export controls have a role, but real leverage lies in America’s ability to attract investment and support an innovative ecosystem that delivers more breakthroughs and better products. China is now neck and neck with the United States in the AI race and hobbling American companies based on outdated narratives would be devastating for national security and US technology leadership.

    The AI race will not be won by playing defense. Instead, America must unleash its firms to compete on the world stage, focusing on innovation and international market leadership—not on policing a smuggling problem that is economically irrational and strategically less impactful than market forces.