China’s AI industry thrives under US sanctions—now Trump is doubling down
New export bans target Chinese chipmakers, but will they slow innovation or strengthen Beijing’s resolve?
For China, 2025 has started off strong in artificial intelligence (AI). In January, DeepSeek released a revolutionary AI model that disrupted industry paradigms and shook the market. This week brought another double blow: Alibaba pledged to invest $52.4 billion in AI infrastructure over the next three years, just days after its founder, Jack Ma, attended a meeting with China’s president and top tech executives—his most high-profile public appearance since November 2020. Meanwhile, The Financial Times reports that Huawei has significantly improved the yield of its AI chip manufacturing process, with 40% of its chips now meeting quality standards for use—up from 20% a year ago.
China appears to be experiencing an unstoppable AI boom, but the Trump administration is determined to intervene. According to Bloomberg, the White House is considering a new round of AI export restrictions that would be even stricter than those imposed by Joe Biden during the last two years of his term. These measures include enlisting allied nations to impose their own restrictions on domestic chip-making equipment manufacturers while also significantly lowering the processing power threshold for AI chip exports without a license. Biden’s controversial export policy, first introduced in October 2022, aimed to block China’s access to high-performance AI chips to curb its development of advanced AI systems. Over the past two years, the administration has tightened these restrictions multiple times, prompting China to respond with its own export controls—particularly on materials essential for producing high-end chips.
If Biden hoped these measures would cripple China’s AI industry, the reality has been quite the opposite. Huawei’s chip-making advancements and DeepSeek’s groundbreaking AI model did not emerge despite the restrictions but rather because of them. Instead of stalling China’s AI progress, U.S. restrictions have forced the industry to reinvent itself. Now, Trump appears ready to double down on a strategy that has yet to yield the intended results.
Expanding Export Controls
According to Bloomberg, senior officials in the Trump administration have met with their counterparts in Japan and the Netherlands to discuss restricting Chinese access to semiconductor manufacturing equipment produced by Tokyo Electron and ASML. The goal is to ensure that these firms comply with U.S. sanctions that already apply to American companies.
Additionally, the administration is exploring new targeted restrictions on specific Chinese companies. One proposed measure would block the Chinese memory chip manufacturer ChangXin from purchasing American technology. Another would tighten controls on Huawei’s chip supplier, SMIC. While Biden completely banned shipments to some of SMIC’s manufacturing sites, he allowed exports to others on a case-by-case basis. The Trump administration fears that SMIC has exploited these exemptions to acquire restricted machinery for its prohibited facilities, and it now seeks to cut off exports to the company entirely.
Another proposed restriction would prevent Nvidia from selling AI chips to China that were specifically designed to comply with Biden-era regulations. This move would further limit China’s ability to access high-performance AI processors.
AI Export Limits Extend to Israel
In a parting policy move, Biden issued new AI computing export regulations that divide countries into three tiers:
Tier 1: The U.S. and 17 mostly European countries face no restrictions.
Tier 3: The 25 nations under U.S. arms embargoes—including China, Russia, Iran, and North Korea—are completely banned from AI chip exports.
Tier 2: The rest of the world—including Israel, Poland, Mexico, Singapore, and the UAE—can receive AI chips but only up to a processing power cap equivalent to 1,700 chips. Exports beyond this limit require a complex approval process.
According to Bloomberg, some officials in the Trump administration are considering lowering this threshold even further, though it remains unclear whether Israel might eventually be moved into Tier 1.
China’s Adaptability Could Undermine U.S. Efforts
While it may take months for these policy shifts to take full effect—especially as the new administration finalizes key appointments—the fundamental objective remains unchanged: to curb China’s ability to develop a cutting-edge chip manufacturing sector and limit its AI advancements. The question is whether intensifying a strategy that has so far been ineffective will produce different results.
Chinese companies have demonstrated remarkable adaptability in the face of Biden’s restrictions. Rather than crippling the industry, U.S. policies have compelled China to develop homegrown alternatives, strengthening its domestic AI and semiconductor sectors.
In the short term, tighter restrictions will likely slow China’s progress in AI and chip manufacturing. However, in the long run, the outcome could mirror that of the Biden-era policies: an increasingly independent, innovative, and resilient Chinese AI industry that no longer relies on American technology to thrive.
